Where are we coming from with respect to monetary policy ?
There are a few terms that have become very popular since the collapse of the financial markets in 2008 when people are talking about monetary policy. In the old good days, your hability to print money had to be backed or pegged to the equivalent amount of a reference asset held at the central banks. For example, gold was the reference and for a central bank to print more of its currency, it had to buy and store more gold to match the circulating money. Then comes inflation, the decline of purchasing power of a given currency over time, and economists have been divided around two competing school of thought on what should be done to fight it. If we take the analogy of a party where no one is having fun. The Keynesian economists in the room would tell you to break out the party games and snacks, and then force people into a rousing game of Twister. Meanwhile, Milton Friedman and his monetarist pals have a different solution. Control the booze, and let the party take care of itself.
When did it start to go wrong ?
Over time this pegged economy suffered from the influence of the US and especially in December 1971, when President Nixon decided to end the Bretton Woods agreement that was signed after WWII. It was the begining of the end in terms of quantitative easing, the infinite capacity to print more money…just like that…without considering all the crisis we had to face, let’s fast forward to the latest one, the subprime crisis in 2007-2008 which ended up with the “too big to fail” default of Lehman Brothers and unprecedented impact on the worldwide economy. To bring some relief and support to the hurted economy in the short term, the Fed in the US decided to inject trillions of quantitative easing…The latest stunt from the Federal Reserve with the Covid19 pandemic is a $10+ trillion 2020 Economic Stimulus.
You can call it quantitative easing (US) or large-scale purchase of assets program, the result is the same, sadly your purchasing power is decreasing in the medium to long term.