I am very pleased that Professor Richard Murphy, in his defence of People’s Quantitative Easing (Letters, 29 September), in response to my letter (28 September), accepts that QE debt is not automatically cost-free. But he slightly missed the point of my response, which is that irrespective of whether interest rates are expressed in nominal or inflation-adjusted terms, each pound going out in interest means one less pound being available to be spent on public services. There does seem some logic in Richard’s view that continuing to expand QE might allow the Bank of England to keep base rates very low or even zero. However, we only have one experience of QE, conducted in a particular set of economic circumstances following the financial crisis, as part of monetary policy operated by respected independent central banks. I would be cautious in assuming that this QE experiment will continue to operate in the same way in different circumstances, especially if for non-monetary policy reasons.
Your correspondent Richard Middleton asks a question many have asked, but to which no Treasury civil servant can respond. Answering properly involves the use of “Bank of England” and “insolvency” in the same sentence and so is a question best avoided. The Bank of England is not just a regulator – it is an operating bank, with assets in the form of government debt (and a small amount of gold) balancing its liabilities in the form of bank deposits and cash money. While the government could in theory cancel some or all of this debt, I have a feeling that attempting to run our economy with an insolvent central bank might not be the best idea.
Author, Simply UK Government Finances 2017-18