How Central Banks “Print” Money: QE and Its Consequences

Quantitative easing (QE) means a central bank buys bonds on a large scale and pays for them with money it creates at that moment. Not a single banknote is printed. The new money appears as balances that banks hold in their accounts at the central bank, called reserves. Since 2008 the Fed, the ECB, the Bank of Japan and, in its own way, the Swiss National Bank have used this to grow their balance sheets at times to seven to ten times their earlier size. The results were low interest rates, rising prices for shares, bonds and houses and, since 2022, the laborious way back called QT.

How our money is created day to day, through loans from commercial banks, is explained in The fiat money system. How the money supply measures M0 to M3 are defined is in Money supply M1, M2, M3. This article is about the tool central banks have used alongside the policy rate since 2008, and about its record after 18 years.

What quantitative easing is

Normally a central bank steers through its policy rate, the rate at which banks borrow from it or deposit with it. In autumn 2008 and again in 2020 that was no longer enough: the policy rate was at zero or below, and the economy still needed more support. So central banks reached for a second lever. They bought long-dated bonds, mainly government bonds, later also mortgage securities, corporate bonds and, in Japan, even equity funds.

The goal was not to hand money to citizens. It was about three things:

1. Pushing down long-term rates. When the central bank keeps buying bonds, their prices rise and their yields fall. That makes mortgages, corporate loans and government debt cheaper.
2. Pushing investors into riskier assets. Whoever sold a government bond to the central bank looks for a new home for the money: corporate bonds, shares, property.
3. Sending a signal. A purchase programme lasting years tells markets that rates will stay low for a long time.

The name comes from Japan. From 2001 the Bank of Japan called its programme "quantitative easing" because it was no longer easing the price of money (the interest rate) but its quantity.

How central banks "print" money: the mechanics of reserves

The word "print" is misleading. Cash plays no part in QE. Everything happens in the books, like this:

Every bank has an account at its central bank. The balance in it is called reserves. Only banks and a few institutions have such accounts; you don't. When the central bank buys a bond, it simply books the purchase price as a new reserve balance in the account of the seller's bank. That money didn't exist before. The central bank doesn't have to get it from anywhere: it is the only body that can create reserves.

If the central bank buys the bond directly from a bank, only reserves grow. The money held by households and companies doesn't change at first. That is why central bank money grew much faster than M2 and M3 after 2008.

A common idea from old textbooks says banks lend out their reserves, and every euro of reserves becomes ten euros of loans. That's not how it works. Reserves never leave the system of central bank accounts; they only move from bank to bank. Whether banks lend more depends on demand and on their capital, not on the amount of reserves. The Bank of England made this clear in a widely cited article in 2014.

Since October 2008 the Fed also pays interest on reserves, and the ECB pays interest on its banks' balances through its deposit facility. That is how they keep control of the policy rate even with trillions of reserves in the system. This point becomes expensive later.

The Fed: four rounds of QE and two of QT

The US central bank went furthest first. Its balance sheet stood at $0.87 trillion in summer 2007. Then came:

• QE1 (November 2008 to 2010): purchases of mortgage securities and Treasuries, about $1.75 trillion in total.
• QE2 (November 2010 to June 2011): $600 bn in Treasuries.
• QE3 (September 2012 to October 2014): open-ended, first $40 bn of mortgage securities a month, from December 2012 plus $45 bn of Treasuries. Afterwards the balance sheet stood at about $4.5 trillion.
• QT1 (October 2017 to summer 2019): reduction to about $3.8 trillion. In September 2019 short-term money market rates suddenly spiked because banks were running short of reserves. The Fed started buying again.
• Pandemic (March 2020 to March 2022): on 23 March 2020 the Fed announced purchases "in the amounts needed". Within two years the balance sheet doubled to its peak of $8.97 trillion in April 2022.
• QT2 (June 2022 to November 2025): up to $95 bn a month matured without replacement. From 1 December 2025 the Fed held its holdings steady again and then bought short-dated Treasury bills to keep bank reserves ample.

On 11 November 2026 the Fed's balance sheet stood at $6.76 trillion, almost eight times its 2007 size. Bank reserves at the Fed, $9 bn on average before the crisis, averaged about $3.0 trillion in 2026.

The ECB, the SNB and the Bank of Japan

Eurosystem: late, then all the bigger

From 2008 the ECB first lent banks money for long periods instead of buying bonds. Its big purchase programme only began in March 2015, at €60 bn a month. In the pandemic the emergency programme PEPP added up to €1’850 bn from March 2020. The Eurosystem's balance sheet rose from €1.29 trillion in January 2008 to €8.84 trillion in June 2022. Most purchases were made by the national central banks, including the Bundesbank and the Oesterreichische Nationalbank, each buying bonds of its own country.

Since July 2023 the ECB no longer replaces maturing bonds from the old programme, and since the start of 2025 none from PEPP either. Banks have also repaid the cheap long-term loans. In early November 2026 the balance sheet stood at €5.91 trillion.

SNB: foreign currency instead of government bonds

Switzerland didn't run QE in the narrow sense, but it expanded its balance sheet on a similar scale. Because investors fled into the franc during the euro crisis, the SNB bought euros and dollars from 2009 and paid with new francs. From September 2011 to January 2015 it guaranteed a minimum rate of 1.20 francs per euro. With the foreign currency it bought foreign government bonds and shares.

The SNB's balance sheet grew from CHF 127 bn at the end of 2007 to CHF 1’069 bn in May 2022, more than Switzerland's entire annual economic output. At the end of September 2026 it was CHF 946 bn, of which CHF 811 bn were foreign currency investments.

Bank of Japan: the largest relative to its economy

From April 2013 the Bank of Japan bought so much that it now owns about half of all Japanese government bonds. It also bought equity ETFs and property funds. From 2016 to March 2024 it even fixed the yield of the ten-year government bond. Since August 2024 it has been gradually buying less. At the end of September 2026 its balance sheet stood at ¥625 trillion, of which ¥504 trillion were government bonds.

The balance sheets from 2007 to 2026 compared

The table shows two things. First, despite QT all four remain far above their old level. In three and a half years of QT the Fed cut a quarter of its balance sheet, but not even half of what was added since March 2020 alone. Second, the expansions came in crises, fast and large. The reductions were slow and were stopped as soon as the money market started to creak.

Quantitative tightening: why the way back is so hard

QT sounds like the simple opposite of QE. In practice the Fed and the ECB almost never sell actively. They let maturing bonds run off and don't buy new ones. The government repays the bond, and the reserves disappear. To keep the financial system from stumbling, central banks set monthly caps.

The problem showed up twice in the US. Banks today need far more reserves than before 2008, because of stricter liquidity rules and because they've grown used to them. When reserves get scarce, overnight rates jump, as in September 2019. That's why the Fed stopped earlier in 2025 than first planned. Its goal is no longer "back to 2007" but "ample reserves", a permanently much higher level.

There is also a cost problem. Central banks pay interest on reserves but hold bonds they bought in the zero-rate era. When policy rates rose in 2022, interest costs exceeded interest income. The SNB made a loss of CHF 132 bn in 2022, mainly because its foreign currency investments fell in value. The ECB posted losses in 2023 and 2024, the Bundesbank a loss of €19.2 bn in 2024. Payouts to federal and state budgets stopped. In the end taxpayers carry these costs.

What QE did to asset prices

Central banks wanted QE to raise bond prices and lower rates. That worked. The ten-year German Bund yielded below −0.5 % at times in 2019 and 2020. A Fed study estimated that QE1 alone pushed down ten-year Treasury yields by 30 to 100 basis points.

Falling rates also lift the valuation of everything else. A rental building, a share or a company is worth more when the safe alternative pays nothing. That's why shares, bonds and property rose much faster than wages and consumer prices in the QE years. Supermarket inflation stayed low for a long time, because much of the new money sat as reserves at banks or flowed into assets. Only in 2021 and 2022, when pandemic programmes combined with government spending that reached households directly, did consumer prices rise sharply too.

Those who already had assets therefore gained most. Savers and renters paid: with near-zero interest and pricier homes. The Cantillon effect describes this redistribution in detail, with figures for Germany, Austria and Switzerland. What inflation does to your savings over the years is shown in Inflation and loss of purchasing power.

QE and bitcoin

Bitcoin is a child of the first QE round. On 3 January 2009, just under six weeks after QE1 was announced, Satoshi Nakamoto wrote the headline of the London "Times" into the first block: "Chancellor on brink of second bailout for banks". The counter-model was clear: a money supply that no one can expand by decree.

The price shows a link, but not a fixed one. On 12 March 2020 bitcoin closed at $4’797. Over the next 20 months the Fed doubled its balance sheet, and bitcoin rose to $67’525 by 8 November 2021. As rate hikes and QT began, it fell to $15’784 by 21 November 2022. After that, though, it reached new highs in the middle of QT. Policy rates and investor expectations move the price more strongly in the short run than the balance sheet does. Interest rates, central banks and bitcoin shows this phase by phase, and M2 money supply and the bitcoin price tests the link with the money supply.

In the long run the bitcoin price has so far followed a trend that hardly depends on central bank rounds: the Power Law model describes it as a function of time since 2009. QE and QT rather explain why the price at times stood far above or below that trend.

What QE means for you as a saver

• The interest on your account is political. Between 2015 and 2022 it was near zero or below in the euro area and Switzerland, because central banks wanted it that way. That can return as soon as the next crisis comes.
• The next crisis brings the next round. In every major crisis since 2008, central banks expanded their balance sheets heavily within a few months. The reduction then took years and stayed incomplete.
• Assets protect better than accounts. Whoever held only cash or a savings account in those years lost purchasing power in real terms. Bitcoin has a fixed maximum supply of 21 million. Its price swings are huge, though, and it is no hedge against every single central bank decision.