Quantitative Easing Brief

In the US, quantitative easing was launched under Ben Bernanke in 2008. Between 2008 and 2015, the US Federal Reserve Bank (the Fed) bought bonds from the market to such extent that, by 2015, its balance sheet had quadrupled to USD 4.5 trillion. Much of that liquidity was invested by recipients in stocks and bonds, thus creating enormous demand for both asset classes. In 2015, the Fed halted the program by discontinuing bond purchases (at that time, monthly bond purchases were in the vicinity of USD 40 billion monthly). In 2017, it started reversing the program by reselling bonds, albeit in small amounts of USD 10 billion per month. Compared to the trillions injected in previous years, and what is still being injected by other central banks, the amount of liquidity taken back from the market by the Fed is considered fairly limited and probably non-consequential.

The European Central Bank (ECB) started its quantitative easing program in 2015 (March) with monthly bond purchases of EUR 60 billion. Purchases were increased to EUR 80 billion monthly in March 2016 and tapered back to EUR 60 billion in March 2017. Starting from January 2018, bond purchases were halved to EUR 30 billion monthly.

In 2010, the Bank of Japan (BOJ) set up an asset buying scheme of JPY 35 trillion (USD equ. of 350 billion annually). The amount was gradually boosted to JPY 93 trillion 2016 (USD equ. of 65-70 billion monthly). As of November 2017, purchases have been scaled down to some USD equ. of 40 billion monthly. Japan's QE program has generated a lot of controversy given the BOJ now controls over 40% of Japan's bond market and also a significant chunk of its stock market.

China's version of QE has been different but no less significant. To stem the collapse of the stock market, the People Bank of China (PBOC) started buying stocks in 2015 indirectly through the China Securities Finance Corp (CSF). Between 2015 and 2017, the size of the PBOC balance sheet increased by the equivalent of some USD 600 billion, implying asset purchases of USD 10-15 billion monthly. The program has since been halted and recently we have not seen a major sustained increase in the PBOC's balance sheet

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To summarize, the amount of financial assets purchased by central banks worldwide has gradually dropped from a peak of some USD 150 billion monthly, back in 2015, to some USD 75-80 billion in 2018.