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Quantitative easing

James Barwell made this Freedom of Information request to Bank of England

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Dear Bank of England,
I am a little confused about Quantitative easing and was hoping you could help explain how the accounting process works for this. What I am especially interested in understanding is, does the process cause the level of Government debt to rise and if so why, if the money is being 'created'.
Also, is it true that the BoE returns the interest paid on the Gilts that it owns to the treasury, effectively giving the Government an interest free loan and if so how much interest is being returned on average per year?
Finally one last question to do with accountancy again. Is it true that cash held by a private bank would sit in the liability side of its balance sheet and if so why? Wouldn't cash be classed as an asset?

Thanks in advance.

Yours faithfully,

James Barwell

Enquiries, Bank of England

Dear Mr Barwell

We acknowledge receipt of your email dated 9 December below (our ref: CAS-15537-K2D9K5).

We will reply in due course.

Yours sincerely

Information Access Team, Communications Directorate
Bank of England | Threadneedle Street | London EC2R 8AH | +44 20 3461 4878

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Enquiries, Bank of England

1 Attachment

Dear Mr Barwell


Thank you for your email.


The Freedom of Information Act provides members of the public with the
right to request recorded information from a public institution, subject
to the exclusions laid out in the Act. However, it does not require those
public institutions to answer general questions as is the case here. As
such, your enquiry has not been considered under the Act, and has been
answered as a general enquiry.


Initially, you may find these guides of some help:










As you can see, the Bank of England using the digital reserves it creates
to purchase assets, which are mostly Government Gilts, from the secondary
market. As such, the level of UK Government debt is unchanged by our asset
purchase operations.


When the Asset Purchase Facility (APF) was set up by the Bank in 2009 it
received an indemnity from HM Treasury. As such, any losses resulting from
the APF would be borne by HMT, and any gains would be transferred to HMT.
The details of this are included in the APF Annual Report above or in
these publications below:






Turning to your final question, I am afraid it is not quite clear whether
you mean commercial banks or the Bank of England, and whether the cash you
refer to is owned by the banks themselves or are a deposit by their


If you are referring to commercial banks, then deposits made by their
customers would be considered liabilities. This is because the Banks do
not ‘own’ this deposit. However, if this cash is owned by a commercial
bank as part of its capital, then it would be considered an asset.


This is similar to the Bank of England when we issue banknotes. When we
issue banknotes to cash suppliers, they are ‘purchased’ from us. The money
we receive from this is then invested by the Bank. We make money on these
investments, which then funds our banknote printing operations. Any excess
is transferred to HMT (this is known as seigniorage). When the cash
suppliers return damaged or old notes to us, we then pay out either in new
notes or the capital is returned. We therefore consider banknotes a
liability on our balance sheet, and the corresponding investments we own
as assets. This can be seen on our balance sheet, which is presented in
our Annual Report (latest below):




I hope this clarifies matters.


Kind regards



Engagement and Enquiries | Communications

Bank of England|Threadneedle St|London EC2R 8AH|+44 (0)20 3461 4878

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