<blockquote>
  <p>[...] where does the newly created money go?</p>
</blockquote>

<p>This money is used by central banks to "buy" commercial banks' bonds <span class="math-container">$\iff$</span> commercial banks are refinancing themselves <span class="math-container">$\iff$</span> this money goes to commercial banks.</p>

<blockquote>
  <p>Does some entity get free money?</p>
</blockquote>

<p>Yes, when central banks buy commercial banks' bonds for free, i.e. at a <a href="https://en.m.wikipedia.org/wiki/Zero_interest-rate_policy" rel="nofollow noreferrer">0 interest rate</a>.</p>

<blockquote>
  <p>Why is that allowed?</p>
</blockquote>

<p>The main reason is that as counter-cyclical agents, central banks have to change reference rates to stimulate their national economies, even if sometimes doing so implies to center them on 0, or even on a negative value. Note that in the case of negative interest rates, we are talking about entities that are paid to get money.</p>

<p>E.g. when refinancing themselves at a lower-than-previously cost, commercial banks are theoretically more prompt to be, say, flexible, and thus to stimulate demands (here and there) in the national economy by lending money (here and there). If supplies stay constant, markets will reach a new equilibrium via prices rising (inflation) due to these stimulated demands. Persistent inflation means new business opportunities, which in turn means growth if capacities to cut these opportunities exist domestically, or thanks to foreign direct investments.</p>

CC BY-SA 4.0
2018-10-04T19:38:58.200Z
"Yes, when central banks buy commercial banks' bonds for nothing, i.e. at a 0 interest rate." Huh? Is this really what they are doing though?
Giskard
CC BY-SA 4.0
2018-10-04T20:00:47.763Z
@denesp, see e g.  [this 2016 article](https://www.google.se/amp/s/amp.theguardian.com/business/2016/sep/08/ecb-keeps-interest-rates-at-0)
keepAlive
CC BY-SA 4.0
2018-10-04T20:09:10.693Z
@denesp and you know what? The ECB have even said that in the case of commercial banks not playing their "role" they would use an [helicopter monetary policy](https://www.google.se/url?sa=t&source=web&rct=j&url=https://amp.theguardian.com/business/2016/sep/22/helicopter-money-back-in-the-air&ved=2ahUKEwjJ_YLny-3dAhVCp4sKHe5TARoQFjALegQICBAB&usg=AOvVaw1VKU1DsLg_ieO70_3CiJNN&ampcf=1) which briefly consists of giving money to people for free.
keepAlive
CC BY-SA 4.0
2018-10-04T20:17:12.693Z
These all seem to miss the point. They give *nothing* to the commercial banks for their bonds? No money at all? And then they redeem the bonds some years later and get money from the commercial banks?
Giskard
CC BY-SA 4.0
2018-10-04T20:26:31.380Z
@denesp. hum.. you miss the main point... they lend money for nothing. Yes no money at all $\iff$ 0 interest rate $\iff$ "some years later, they get money back from commercial banks"... no interest... And actually, when considering inflation, they even get less than what has been first lended.
keepAlive
CC BY-SA 4.0
2018-10-04T20:34:05.907Z
@denesp. These "free-money" policy are canonical of what is meant by ***unconventional*** *monetary policy*. What you do not get is that the rationnality of central banks is not what you expect it to be. That being said, not all central banks can conduct such policies... But this is another discussion.
keepAlive
CC BY-SA 4.0
2018-10-04T21:04:09.920Z
This seems to be a problem of English. I think "central banks buy commercial banks' bonds for nothing" means something different than what you think it means. There does not seem to be any argument about economics here. Cheers.
Giskard
CC BY-SA 4.0
2018-10-04T21:45:49.950Z
@denesp. "for free" instead of "for nothing" is more appropriate, which changes nothing regarding how you were surprised of discovering that 0 rates exist. Incidentally,  "buy" and "lend" are synonymous in market finance. Idem for their antonymes of course. You are welcome
keepAlive
CC BY-SA 4.0
2018-10-05T04:25:05.640Z
I was absolutely flabbergasted.
Giskard
CC BY-SA 4.0
2018-10-04T19:30:32.733Z
2018-10-04T21:32:58.437Z
2018-10-04T21:32:58.437Z
keepAlive
<p>So when QE is used (or something similar that results in printing mone), where does the newly created money go? Does some entity get free money? Why is that allowed?</p>

<central-banking><federal-reserve>
Where the money from QE goes
Alex T
# Where the money from QE goes

(Asked by: username_0 on 2018-10-04)

So when QE is used (or something similar that results in printing mone), where does the newly created money go? Does some entity get free money? Why is that allowed?

**Tags:** central-banking, federal-reserve

---

## 1 answers

### Answer by username_1 on 2018-10-04. Score: 1 | Accepted answer

> [...] where does the newly created money go?

This money is used by central banks to "buy" commercial banks' bonds $\iff$ commercial banks are refinancing themselves $\iff$ this money goes to commercial banks.

> Does some entity get free money?

Yes, when central banks buy commercial banks' bonds for free, i.e. at a [0 interest rate](https://en.m.wikipedia.org/wiki/Zero_interest-rate_policy).

> Why is that allowed?

The main reason is that as counter-cyclical agents, central banks have to change reference rates to stimulate their national economies, even if sometimes doing so implies to center them on 0, or even on a negative value. Note that in the case of negative interest rates, we are talking about entities that are paid to get money.

E.g. when refinancing themselves at a lower-than-previously cost, commercial banks are theoretically more prompt to be, say, flexible, and thus to stimulate demands (here and there) in the national economy by lending money (here and there). If supplies stay constant, markets will reach a new equilibrium via prices rising (inflation) due to these stimulated demands. Persistent inflation means new business opportunities, which in turn means growth if capacities to cut these opportunities exist domestically, or thanks to foreign direct investments.

> **Comments:**
> **username_2**: "Yes, when central banks buy commercial banks' bonds for nothing, i.e. at a 0 interest rate." Huh? Is this really what they are doing though?  
> **username_1**: @denesp, see e g.  [this 2016 article](https://www.google.se/amp/s/amp.theguardian.com/business/2016/sep/08/ecb-keeps-interest-rates-at-0)  
> **username_1**: @denesp and you know what? The ECB have even said that in the case of commercial banks not playing their "role" they would use an [helicopter monetary policy](https://www.google.se/url?sa=t&source=web&rct=j&url=https://amp.theguardian.com/business/2016/sep/22/helicopter-money-back-in-the-air&ved=2ahUKEwjJ_YLny-3dAhVCp4sKHe5TARoQFjALegQICBAB&usg=AOvVaw1VKU1DsLg_ieO70_3CiJNN&ampcf=1) which briefly consists of giving money to people for free.  
> **username_2**: These all seem to miss the point. They give *nothing* to the commercial banks for their bonds? No money at all? And then they redeem the bonds some years later and get money from the commercial banks?  
> **username_1**: @denesp. hum.. you miss the main point... they lend money for nothing. Yes no money at all $\iff$ 0 interest rate $\iff$ "some years later, they get money back from commercial banks"... no interest... And actually, when considering inflation, they even get less than what has been first lended.  
> **username_1**: @denesp. These "free-money" policy are canonical of what is meant by ***unconventional*** *monetary policy*. What you do not get is that the rationnality of central banks is not what you expect it to be. That being said, not all central banks can conduct such policies... But this is another discussion.  
> **username_2**: This seems to be a problem of English. I think "central banks buy commercial banks' bonds for nothing" means something different than what you think it means. There does not seem to be any argument about economics here. Cheers.  
> **username_1**: @denesp. "for free" instead of "for nothing" is more appropriate, which changes nothing regarding how you were surprised of discovering that 0 rates exist. Incidentally,  "buy" and "lend" are synonymous in market finance. Idem for their antonymes of course. You are welcome  
> **username_2**: I was absolutely flabbergasted.  

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