Central banks around the world have employed untested emergency bond buying operations in an attempt to stabilize their markets or to encourage growth. Now those chickens are coming home to roost.
The FT reports that leading central banks own a full fifth of their governments’ debt. The six most active central banks, the Fed, the BOJ, the ECB, the BOE and the Swiss and Swedish central banks collectively own over $15 trillion in assets. Kate Allen and Keith Fray report:
Of this, more than $9tn is government bonds — one dollar in every five of the $46tn total outstanding debt owed by their governments.
The ECB’s total balance sheet recently topped that of the Fed in dollar terms. It now holds $4.9tn of assets, including nearly $2tn in eurozone government bonds.
The BoJ’s balance sheet has also just topped that of the Fed, with $4.53tn of holdings, of which 85 per cent are Japanese government securities.
The Fed’s balance sheet has expanded significantly several times in the past, including during the second world war when it soaked up debt sales in a bid to improve market conditions. But the current era is the first time in history that such a large group of central banks have undertaken such a substantial volume of co-ordinated buying over the space of nearly a decade.
What was originally intended as a temporary emergency measure has now evolved into a significant challenge for policymakers as they contemplate how to return the global economy to normal monetary conditions.
Read more here.