What will qe2 do to the dollar

For other countries, if the value of their national currency drops, their bills payable in dollars get more expensive. This phenomenon helped trigger the Asian financial crisis in the late s: Thailand devalued the Baht, which meant that the many companies that borrowed in U.

The fact that the U. The dollar could get overly feeble, making it prohibitively expensive for Americans to travel abroad, pay salaries overseas and purchase foreign products. Most importantly, an overly aggressive policy of printing money to repay debt could make dollars a bad investment for foreign governments especially China, which holds more than a trillion , by making their dollar holdings less valuable.

If the plan works as the Fed hopes, QE2 could spur economic growth and create much-needed employment, digging the economy out of its current rut. The big question, however, is this: what will happen to all the extra money flowing into the economy from QE2? Will it be invested wisely — building jobs and businesses that will generate revenue and in turn help grow the economy?

As any close observer of the news knows, we've been down this road before. There are plenty of signs that while some good will come of QE2, in the long term the money may not be spent wisely. For starters, easy money has a troubled track record. Over the past decade, the Fed kept a loose money policy for far longer than many economists were comfortable with.

The result: investors threw cheap money at bad deals. We deluded ourselves into thinking that any bogusbusiness. Acolytes of the digital revolution preached a frictionless economy, disparaged bricks and mortar, and predicted a year boom.

After the crash, as an economic pick-me-up, the Fed once again made dollars easier to obtain. Suddenly, bricks and mortars were in vogue. Investors poured the cheap money into real estate.

This made everyone feel rich again for a while, and changed the American landscape. In Florida, California, and Nevada and across the nation, new housing developments sprung up like mushrooms on a rainy day.

QE2 was followed by QE3 in September Article Sources. Investopedia requires writers to use primary sources to support their work. These include white papers, government data, original reporting, and interviews with industry experts. We also reference original research from other reputable publishers where appropriate. You can learn more about the standards we follow in producing accurate, unbiased content in our editorial policy.

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Investopedia does not include all offers available in the marketplace. Related Terms Quantitative Easing QE Quantitative easing QE refers to emergency monetary policy tools used by central banks to spur iconic activity by buying a wider range of assets in the market. Tapering is when a central bank reverses its quantitative easing QE policies. Easy Money Definition Easy money is when the Fed allows cash to build up within the banking system in order to lower interest rates and boost lending activity.

What Is Monetary Policy? Monetary policy is a set of actions available to a nation's central bank to achieve sustainable economic growth by adjusting the money supply.

What is Yield Curve Control? While the Federal Reserve normally uses short-term interest rates to manage the economy, yield curve control does that by targeting long-term rates. Pushing On A String Definition Pushing on a string is a metaphor for the limits of monetary policy when households and businesses hoard cash in the face of a recession.

Partner Links. Related Articles. Federal Reserve Open Market Operations vs. Investopedia is part of the Dotdash publishing family. The dollar will also get a boost, particularly against the euro, the second most actively traded currency, because of the relative central bank positions. Higher growth will lead them to stop QE or reverse it. All of which would be good for the dollar. But additional fuel for a dollar rally comes from extreme bets against the currency, which will have to be reversed once any rally starts.

While currency speculators have reduced bets against the U.