Money: What is it?

fluxo

I thought they were paying interest? Albeit to themselves.

The government / boe could choose to cancel the debt. But I read somewhere that doing so would have negative impacts on the market sentiment on sterling if the government could just create the money and never pay it back. Plus potential knock on impacts from inflation.

From my non expert view it is an attractive proposition. At a stroke our deficit reduced and the government debt to gdp ratio significantly improved.

Blitzkrieg

Long post warning!

The government was initially paying interest then agreed not to.

The official announcement:

"Since 2009 the Bank of England has operated QE by buying gilts and holding them in a dedicated facility called the Asset Purchase Facility (APF). These gilts attract regular coupon payments from the Exchequer. With the purchases of the APF having reached £375 billion, this Facility has now accumulated a large cash balance. As the scale and likely duration of the scheme has increased significantly since its inception, it makes sense to normalise the cash management arrangements for the APF.
From now on this excess cash will be transferred to the Exchequer on a regular basis. This will improve transparency and align our practices with those of major central banks like the United States Federal Reserve and the Bank of Japan.
These changes will end the current arrangement which requires the Government to borrow money to fund coupon payments to the Bank of England. Holding large amounts of cash in the APF is economically inefficient as it requires the Government to borrow money to fund these coupon payments.
At some point in the future, as monetary conditions normalise, it is likely that the cash flows will need to be reversed. Return payments from the Government to the APF may be necessary to meet shortfalls in the APF’s net income as the Bank Rate rises, or capital losses on its gilt holdings as the Monetary Policy Committee unwinds QE. The previous Government agreed that any future losses incurred by the APF will be met in full by the Government. For this reason, any net coupon income transferred from the APF to the Exchequer should be used solely to pay down government debt."

Source:  Changes to cash management operations - Press releases - GOV.UK

This is how it was reported:

"Bank of England hands QE income to Treasury

The Bank of England has said it will give the Treasury the interest it earns on certain government debts it holds.
The Bank owns £375bn in gilts due to its quantitative easing (QE) policy of buying up debt to boost the economy.
The transfer will cut the government's borrowing needs and the net debt it reports in its financial accounts.
As of last March, the Bank held £24bn in cash received from government interest payments, a figure expected to rise to £35bn by next March."

Or more melodramatically:

Source: Bank of England hands QE income to Treasury - BBC News

"Treasury receives £35bn in 'money for nothing' from Bank of England as it surrenders interest earned on QE assets

The Treasury will receive a £35billion windfall from the Bank of England, it was announced today, in an unexpected boon to the Chancellor's budgetary headache."

Source: Treasury receives £35bn in 'money for nothing' from Bank of England as it surrenders interest earned on QE assets

I don't know what happens to the gilts when they reach maturity. Perhaps some acquired in the earlier QE rounds have already reached that date.

As you can see from the announcement, and from some unquoted articles elsewhere, the idea of reversing the process has been put forward. But that might be quite difficult politically and I'm not sure if it's guaranteed to happen.

QE could be viewed as a partial debt cancellation scheme in addition to any other benefits it might offer. In which case the government's total debt after another round of QE might only be 65% (guess) of GDP instead of 90%. That would help buy the government time to get deficits down.

But I would also guess that this sort of action needs to be limited, because it is a trick of sorts. It amounts to the government printing money to pay off some of its outstanding debt, which taken to excess would be a bad idea. That is, the BoE (owned by the government) is printing money to buy the government's bad debt before, perhaps, cancelling it.

That's not how QE is usually presented - most often the talk is of increasing liquidity or encouraging lending or that sort of thing. I'm a bit surprised that the possible implications for government debt are so rarely discussed, considering that the amounts involved are in the hundreds of billions.

Trollslayer

If I'm not mistaken, Alan, the IOU idea is explained in the two articles I linked to. So I'm not sure what additional point you are making. Except, that is, to say that paper in itself is worthless, which it isn't (but this depends on what you mean by " in itself"). It has uses and that gives it some value, albeit not the IOU face value.

---

So is Bitcoin money? Are gift vouchers money? Do the two satisfy the definitional conditions?

Where does the government keep its money?

Derek S-H

Ah yes the old money scam. Don't forget, what's borrowed into existence,  what's created from nothing has to be paid back and with interest too!  That means there's never enough money in the system to pay off the debt. That means while banks are lending and every body's robbing Peter to pay Paul, that every thing seems to work fine.

Then after ten/fifteen years, banks create a problem that leads them to stop lending, which makes businesses fail,  which makes people lose their jobs, which means people can't pay their mortgages,  which means a bank comes and steals their house.

Banking, aka legalised theft.

SteakAndCake

To quote Pink Floyd "Money, it's a gas."

fluxo

It's all just a man-made construct and a compete fabrication.

We spend our whole lives scrabbling around for it and then we die. What's the point?

Lesmor

I think that question reaches a little further than a discussion on finance

Lesmor

Don't confuse "given" with "gave" plus QE is a method it can't be given to anyone
government bonds are obviously not the same as having access to cheap borrowing

Trollslayer

Well do please enlighten me how QE 'gave' banks cheap credit or a pool to offload bad debt.

Cliff

Completely ignoring that the government borrowing requirement is now £48.6 billion - back to 2008 levels before the US caused a massive banking collapse.