RBA Governor Philip Lowe.
RBA Governor Philip Lowe.

How cash can be printed ‘out of thin air’

Reserve Bank boss Philip Lowe is shedding light on Australia's economic recovery from the coronavirus pandemic at an inquiry today.

Dr Lowe, Australian Prudential Regulation Authority chair Wayne Byres and Australian Securities and Investments Commission chair James Shipton are appearing via videoconference before the COVID-19 committee hearing.

During the questioning Centre Alliance Senator Rex Patrick asked for the RBA chief to "just help me out with a bit of 101 monetary policy."

Asked to explain where the RBA got its money from, Dr Lowe explained he could create it "out of thin air."

"This is the beauty of central banking. Central banks are unique entities and they can create money,'' he said.

"We are the one entity in the country that can create money just out of nothing.

"So, that's why it's very important the governance around the process is very strong. Obviously, that could be abused if you just created money out of thin air to finance government expenditure without checks and balances."

Senator Patrick responded that it "sounds like a good job."

Dr Lowe has been talking up the need to restore business and consumer confidence, while noting the ultimate key to recovery hinges on the development of a medical treatment for the virus.

He told a forum last week the faster that restrictions can be lifted safely, the sooner and stronger the economic bounce-back will be and the less "economic scarring" will take place.

Finance Minister Mathias Cormann backed the call for the economy to be restored back to normal as soon as possible.

He said the government had "planned for the worst" two months ago, but Australia was now "close to eliminating" the spread of virus cases.

This had led to a "change in parameters" when it came to the federal budget and spending.

"We, of course, are working now on the transition out of the period of temporary support measures in the economy," he told the ABC.

"In that context, of course, we will be announcing a whole series of measures, including, and in particular, through the budget on October 6 to maximise the strength of our economic recovery."

- With AAP

 

Originally published as How cash can be printed 'out of thin air'



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