QE proposal could yield untold financial instability for SA’s economy
If global inflows from global QE are combined with domestic QE, the combined domestic liquidity can cause an asset price bubble to burst
Prof Christopher Malikane concluded a recent opinion piece by saying “ ... a QE programme ... would significantly ease the fiscal constraint on government and support liquidity provision to the banking sector, thereby ensuring financial stability”. In my opinion, when all things are considered this proposal is dangerous and might yield untold and unprecedented financial instability for the SA economy if implemented as suggested.
Quantitative Easing (QE) is the financial policy of purchases of government debt-raising paper (bonds) in the hands of the private sector holders, and could be narrowed to the banking sector for this discussion. Let us assume that one agrees with the proposal “ ... to set the repo rate at the level that is consistent with the stability of the exchange rate, and then embark on QE”, as the author postulates...
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