What is quantitative easing? Central banks normally regulate the quantity of money in the economy by altering its price in the form of the interest rate, which makes demand expand or contract. Once interest rates get down towards zero, they cannot be cut any further. (Unless, that is, the central bank starts charging people for holding money, for example by putting expiry dates on currency, but that would be difficult to pull off.)

So the only way to get more money into the economy is to pump it in by other means. In an economy that ran entirely on banknotes, this would just mean setting the printing presses going. In a credit-based financial system it means taking actions such as buying long-term government bonds. This means taking less liquid financial assets out of the system and holding them on the central bank’s balance sheet, and replacing them with cash.