And our balance sheet tools must evolve alongside it towards a “future normal”:   On the financial stability side, the experience of the Covid crisis, and the turbulent “dash for cash” that took place in financial markets in March 2020, when exceptionally high demand for cash led to a breakdown in the functioning of core financial markets, has raised questions of whether central banks need new tools for dealing with market dysfunction.12 (I will come back to this question later in the context of the impact that our QE purchases had).   On the monetary policy side, the Bank’s Monetary Policy Committee, which is responsible for deciding what monetary policy actions to take, has asked us to start “internal technical preparations to deliver the option of a tiered system of reserve remuneration that could be ready to be implemented, should it be judged appropriate, alongside a negative Bank Rate”.13    Looking further ahead central banks around the world are grappling with the question of whether to provide the public with electronic money, or Central Bank Digital Currency, and the challenges and opportunities that such a decision could throw up in a possible “future normal”.14  Set out in Mark Carney’s speech ‘The UK at the heart of a renewed globalisation’ I described the evolution of these tools in my 2018 speech “Finding the right balance”. As set out in Andrew Hauser’s speech “From Lender of Last Resort to Market Maker of Last Resort via the dash for cash”.
To make the macroeconomic effects of QE more concrete: previous Bank of England analysis suggests that the initial £ billion of QE during QE1 may have increased GDP by 1.5%–2% and inflation by 0.75pp–1.5pp.19 Using similar estimates in a 2016 speech, Mark Carney, estimated that if the MPC had left monetary policy – Bank Rate and QE – unchanged in the financial crisis, the level of GDP would have been 8% lower and 1.5 million more people would have been out of work.20  Whether the £ of QE we announced last March had the same impact is a complex question, and there are arguments in both directions as to whether its impact will turn out to have been larger or smaller. On the one hand, government bond yields have been very low by historical standards and it is possible that there may be limits to how much more QE can do to push them down. On the other hand, our March purchases in particular took place as I have said against a backdrop of extreme market disorder. Our purchases, alongside other policy measures here and abroad, were instrumental in restoring order, and indeed we deliberately carried them out at an unprecedentedly fast pace to achieve that – in the words of the Governor, Andrew Bailey, we “went big and fast”. Had we not done this then that market disorder might, as we said at the time, have led to an unwarranted tightening of monetary and financial conditions, and an even sharper contraction in GDP.