The issuing entity will continue to purchase government bonds for USD 942,000 million. The initiative seeks to encourage spending rather than saving.
In recent days, after several meetings, the Monetary Policy Committee (MPC) of the Bank of England approved maintaining interest rates at 0.1%. It may also set negative interest rates in the face of a crisis that growing unemployment has caused.
In August, the central bank studied the effectiveness of a possible adoption of negative rates. The issuing entity did this in light of the progressive decrease in rates in recent years, as it states in the document that they recently published.
Negative interest rates would theoretically discourage saving as individuals and organizations would not receive interest on the cash that they deposit in banks. Instead, they would have to pay these financial institutions to save. They would also have the option to receive money for borrowing.
Current loans maintain the agreed interest rates at the time that users receive them, but negative rates would benefit those with variable rate loans. Only English banks take this precaution: the fine print in mortgage loan contracts states that rates cannot be less than zero. For this reason, the rate that they apply for existing variable rate loans, in case they adopt a negative rate, will effectively be zero.
However, the idea of negative interest rates seeks to encourage companies to borrow, invest, and grow, which would boost the economy that the current recession has hit. This is one of the worst financial collapses that have occurred in history.
Besides keeping interest rates at 0.1% and holding the unusual option of negative interest rates on the table, the Bank of England will keep its government bond and corporate bond purchase program. Total purchases remain unchanged at GBP 745 billion, which is equivalent to about USD 942 billion.
The document notes that the funding for these acquisitions comes from “the issuance of central bank reserves,” which is equivalent to the printing of inorganic money. If market conditions deteriorate again, the issuing entity indicates that it would “increase the pace of purchases to ensure the effective transmission of the monetary policy.”
This provision by the Bank of England has similarities, with both the monetary policy of the US Federal Reserve (the FED) and the latest actions by the European Central Bank since they are facing the crisis by increasing public debt. For the current US fiscal year, which ends on September 30th, the public debt may exceed the gross domestic product.
The global health crisis that the COVID-19 pandemic has caused affected the economy worldwide. On March 12th, all markets dropped, including those of Bitcoin and other cryptocurrencies. Despite recent fluctuations in its price, Pioneering cryptocurrency has maintained a 52% return since the beginning of 2020, and a 128% recovery compared to the collapse in mid-March. At the time of writing this article, Bitcoin is trading at USD 10,907, according to data from Messari.
By Alexander Salazar