What Is Asset Purchases and What Do They Mean?

Asset purchases also known in the markets as monetary easing is a market operation conducted by central banks that increases liquidity and inflation. It is designed to stimulate a nation's economy and encourage businesses and consumers to borrow and spend more.

This operation usually consists of central banks injecting money into the economy by buying bonds from the government or commercial banks. These can be realized in stocks, bonds, or treasury assets. The aim of asset purchases is to increase the money supply and make it more accessible in a way that boosts economic activity and growth. The idea is to keep interest rates low so as to increase lending to companies and individuals and to boost confidence in the economy. In practice, quantitative easing may not always work and is in fact a highly controversial approach with many supporters and opponents. Asset purchases are a relatively new expansionary monetary policy. Looking at economies around the world, asset purchase programs have been the most popular way to increase the amount of money in the markets. The US Fed, the ECB, the BoE in the UK, the BoJ in Japan, and other countries that have a say on the world stage have launched asset purchase programs one after another. With the onset of the pandemic and the introduction of lockdown measures, the money injected into the markets through asset purchases was very effective in eliminating the congestion. The abundance of money injected into the market through asset purchases encourages firms and individuals to spend and ensures the continuation of economic activity. Since the cost of money decreased with the ease of access to money and the fall in interest rates, the loans and opportunities offered to consumers through banks increased. Thus, the financial effects of the precarious environment created by the pandemic would be mitigated; the most critical variables of the economy such as employment, production and consumption would be able to survive these historic days with minimal damage.   Follow Global Economic Developments on Social Media! Click here to follow Ieconomy official Facebook account! Click here to follow Ieconomy official Instagram account! Click here to follow Ieconomy official Twitter account!