# Paper money, central banks, and credit creation

The money-power prelude behind the book: paper money, central banks, bank credit, monetary targets, and the shift from interest-rate thinking to quantity-of-credit politics.

*This story parallel: The world trade and money order*
*This story parallel: The history of money*
*This story part of: Princes of the Yen: Japan built, bubbled, and broken*
*This story part of: Money and finance*

## 10th century — Sung Dynasty launches the world's first paper money

The world's first paper money was launched in the tenth century in China by the ruling Sung Dynasty, with the emperor as sole issuer and money creation by others punishable by death.

> "The world’s first paper money was launched in the tenth century in China by the ruling Sung Dynasty."
> — Princes of the Yen

## 13th century — Marco Polo in Kublai Khan's China

Marco Polo spent twenty years in Kublai Khan's China in the late thirteenth century and delivered to Europe a detailed description of its advanced paper money system.

> "It is at this time that a detailed description was delivered to Europe in the form of Marco Polo’s report of his twenty years spent in Kublai Khan’s China in the late thirteenth century."
> — Princes of the Yen

## 1875 — Foundation of the Reichsbank

The Reichsbank was founded in 1875 as a largely privately owned central bank accountable to its shareholders, giving it de facto independence from the German government.

> "This independence existed to a great extent de facto since its foundation in 1875, because the central bank was largely privately owned and accountable to the shareholders.21"
> — Princes of the Yen

## c. 1900 — United States overtakes Britain economically

Growing rapidly without a central bank, the United States had just about overtaken Britain, then the world's leading economic power, by 1900.

> "America did not fare badly without a central bank: It was the fastest-growing emerging market at the time and by 1900 had just about overtaken Britain, the world’s number one economic power."
> — Princes of the Yen

## 1908 — Havenstein becomes Reichsbank president

Rudolf von Havenstein became president of the German Reichsbank in 1908 and was a strong defender of central bank independence.

> "Rudolf von Havenstein, for instance, became president of the Reichsbank in 1908 and strongly defended the principle of central bank independence."
> — Princes of the Yen

## 1913 — Founding of the U.S. Federal Reserve

The Federal Reserve was founded in 1913, half privately owned, after Congress was persuaded that a central bank could bail out banks in a crisis.

> "The Federal Reserve was founded only in 1913 and remains half privately owned. A reluctant Congress was finally persuaded to agree to its establishment based on the argument that the central bank could step in and bail out banks when a banking crisis occurs."
> — Princes of the Yen

## 1913 — Founding of the U.S. central bank

The United States acquired a central bank as recently as 1913; until the advent of central banks, private banks printed and issued paper money whenever someone took out a loan.

> "Until the advent of central banks (in the United States as recent as 1913), private banks therefore printed and issued paper money when someone took out a loan."
> — Princes of the Yen

## 23 December 1913 — Federal Reserve Act signed

President Woodrow Wilson signs the Federal Reserve Act, creating a central bank for the United States. The new system underpins the dollar's rise to global dominance.

## 1922 to 1923 — German hyperinflation under the Reichsbank

The German central bank, then called the Reichsbank, created too much money in 1922 and 1923, causing hyperinflation, the episode usually cited to justify postwar central bank independence.

> "It is well known that the German central bank, then called the Reichsbank, created too much money in 1922 and 1923, and hence caused hyperinflation."
> — Princes of the Yen

## c. 1930 — The Great Depression and the Fed's inaction

During the Great Depression of the 1930s, the U.S. Federal Reserve failed for almost a decade to take the policies needed for recovery, watching as tens of thousands of banks went bankrupt with the savings of ordinary citizens.

> "However, the Fed failed to take the policies that were necessary to create a recovery for almost a decade. Instead of intervening and implementing the policies for which it was created, namely, printing sufficient amounts of money and supporting the banks, the Fed watched as tens of thousands of banks went bankrupt, taking the savings and livelihoods of many ordinary citizens with them."
> — Princes of the Yen

## 1933 to 1937 — Reichsbank's monetized fiscal policy under Schacht

From 1933 to 1937 the Reichsbank under Hjalmar Schacht combined stepped-up central bank credit creation with fiscal spending programs funded by bills of exchange purchased by banks and the central bank, known in the German tradition as silent funding.

> "This is effectively the policy combination adopted by the Reichsbank from 1933 to 1937."
> — Princes of the Yen

## 1937 — Temporary Funds Adjustment Law

With the reform bureaucrats in power after hostilities opened in China, the Temporary Funds Adjustment Law of 1937 brought banks' investment and loan decisions under strict control by the central bank and the Ministry of Finance.

> "This law brought banks and their investment and loan decisions under strict control by the central bank and the Ministry of Finance. Funding through the stock market was reduced to a trickle, and the banking system was relied upon for resource allocation."
> — Princes of the Yen

## 1939 — Hitler dismisses Schacht and nationalizes the Reichsbank

In 1939 Hitler sacked Schacht as Reichsbank president after disagreements and took more direct control over the central bank through a new law; he nationalized the Reichsbank the same year.

> "But in 1939 Hitler sacked Schacht as Reichsbank president after disagreements, taking more direct control over the central bank through the new law."
> — Princes of the Yen

## 1942 to 1991 — Credit quantity as BoJ's central policy tool, 1942-1991

Research cited by the author shows the Bank of Japan used the quantity of credit creation as its central monetary policy operating and target variable at least from 1942 to 1991.

> "Most importantly, as Werner (1998d, 1999a, 2002a) has shown, the central bank has used the quantity of credit creation as its central monetary policy operating and target variable at least throughout the period from 1942 to 1991."
> — Princes of the Yen

## 22 July 1944 — Bretton Woods system

financial-economic agreement reached in 1944

## c. 1944 — The US dollar becomes the world's reserve currency

Under the Bretton Woods system the dollar became the anchor of global trade and central bank reserves. It kept that role after 1971, giving the United States broad influence over world finance.

## 1946 — Ichimada appointed Bank of Japan governor

In 1946, with the approval of the U.S. occupation, Hisato Ichimada, a Bank of Japan official trained in credit creation who had studied Schacht's Reichsbank in Berlin, was appointed BoJ governor.

> "In 1946, with the approval of the U.S. occupation, a young Bank of Japan official named Hisato Ichimada was appointed BoJ governor."
> — Princes of the Yen

## 1947 to 1949 — Temporary Law for Credit Allocation enacted and rescinded

In 1947 the Temporary Law for Credit Allocation moved the Bond Committee to the central bank; in 1949 the law was rescinded and the Ministry of Finance reclaimed oversight of private-sector bond issuance.

> "In 1947, the Temporary Law for Credit Allocation moved the Bond Committee (Kisai Kai) to the central bank, putting it in charge of bond issuance. In 1949, the Temporary Law for Credit Allocation was rescinded, and MoF reclaimed oversight of private-sector bond issuance, which was subject to approval by its securities bureau."
> — Princes of the Yen

## January 1947 — Reconstruction Finance Bank established

In January 1947 the Reconstruction Finance Department was separated from the Industrial Bank of Japan and established as the public Reconstruction Finance Bank, tasked with preferential funding of strategic industries and funded by government bills the central bank had to discount.

> "In January 1947, it was separated and established as the public Reconstruction Finance Bank (Fukkō Kinyū Kinko), whose job was to provide preferential funding to strategic industries."
> — Princes of the Yen

## 1949 — Bank of Japan Policy Board introduced

A nominal Policy Board was introduced at the Bank of Japan in 1949, but Ichimada ensured it was placed inside the central bank and under its control, creating a sleeping board that made no important decisions.

> "Apart from the marginal change that resulted from the introduction of the nominal Policy Board in 1949, the law was still the same one that had been introduced in 1942, when the control bureaucrats were in charge."
> — Princes of the Yen

## 1954 to 1956 — Araki returns as BoJ governor

After the U.S. occupation ended, Araki moved back from the ambassadorship to head the central bank again, serving as Bank of Japan governor from 1954 to 1956.

> "Araki switched surprisingly smoothly back from U.S. ambassador to central banker and controlled Japan’s economy again as BoJ governor from 1954 to 1956."
> — Princes of the Yen

## April 1960 — Finance Minister Sato declines to revise the BoJ Law

In April 1960 the new finance minister Eisaku Sato declared that with two conflicting committee recommendations he could not introduce legislation to change the BoJ Law, leaving MoF's legal supremacy over the central bank intact.

> "In April 1960, the new finance minister, Eisaku Sato (brother of Prime Minister Nobosuke Kishi and nephew of their uncle Yosuke Matsuoka, the great industrialist of the Manchurian war economy), declared that with two conflicting recommendations from the committee, he could not introduce new legislation to change the BoJ Law.62"
> — Princes of the Yen

## November 1965 — First postwar Japanese government bonds issued

After Tanaka agreed to change the Finance Law to permit bond issuance, the first batch of Japanese government bonds came onto the market in November 1965, tipping the power balance between MoF and the BoJ in the central bank's favor.

> "In November 1965, the first batch of Japanese government bonds (JGBs) came onto the market. This change tipped the power balance between MoF and the BoJ distinctly in favor of the BoJ."
> — Princes of the Yen

## c. 1965 — Run on Yamaichi Securities and forced BoJ rescue

After stocks crashed, the fourth biggest broker Yamaichi Securities suffered a customer run, and Finance Minister Kakuei Tanaka demanded that the Bank of Japan extend unlimited credit to Yamaichi and expand credit creation, which the legally subordinate BoJ had to do.

> "As small investors pulled their money out of the market, the fourth biggest broker, Yamaichi Securities, experienced a run by its customers. Finance Minister Kakuei Tanaka was quick to take appropriate action. He went straight to the Bank of Japan and demanded unlimited credit for Yamaichi Securities and an increase in credit creation for the economy."
> — Princes of the Yen

## 1967 — German parliament passes the Stability and Growth Act

In 1967, ten years after the Bundesbank's founding, the German parliament passed the Stability and Growth Act, mandating the central bank to pursue price stability, high employment, external equilibrium, and steady adequate economic growth.

> "In 1967, ten years after the founding of the Bundesbank, the parliament passed the Stability and Growth Act, which clearly set out the objectives of its policy as “price stability, a high level of employment, external equilibrium, steady and adequate economic growth.”"
> — Princes of the Yen

## 1972 — Karl Schiller forced out over Bundesbank dispute

In 1972 German economics and finance minister Karl Schiller argued for revaluing the DM against excessive U.S. credit creation; the Bundesbank under President Klasen refused and the popular minister was forced out of government, though the Bundesbank took his advice a year later.

> "For instance, in 1972, when economics and finance minister Karl Schiller correctly argued that the excessive credit creation by the United States and massive flight from the dollar should be countered by revaluing the DM, the Bundesbank under President Klasen refused. The highly popular and hitherto successful minister was forced out of the government and resigned."
> — Princes of the Yen

## 1978 — Bank of Japan introduces monetary targeting

In 1978 the Bank of Japan officially adopted monetary targeting, announcing growth targets for money supply measures such as M2+CD, a framework the author describes as a monetarist smoke screen for its window guidance credit controls.

> "In 1978, the Bank of Japan officially introduced monetary targeting, a procedure by which the central bank selects a certain measure of the so-called money supply, such as M2+CD, and at the same time announces a specific target for its growth rate that was to be attained in the next time period, such as the coming six months."
> — Princes of the Yen

## 1979 — Swiss central bank briefly imposes negative rates

In early 1979 the Swiss central bank briefly lowered short-term interbank rates into negative territory.

> "The Swiss central bank briefly lowered short-term interbank rates into negative territory in early 1979."
> — Princes of the Yen

## 1980s — Central banks abandon monetary targets

By the mid-1980s both the Bank of England and the U.S. Federal Reserve announced that they had lost faith in M1, M2, and M3 money-supply measures and were abandoning monetary targets altogether.

> "By the mid-1980s, both the Bank of England and the U.S. Federal Reserve had announced that they had lost faith in the M1, M2, or M3 type of money-supply measures and were abandoning monetary targets altogether."
> — Princes of the Yen

## 1982 to 1987 — Federal Reserve abandons monetary targeting

The Federal Reserve, struggling to control both interest rates and monetary quantities, abandoned M1 targeting in 1982 and monetary targeting altogether in 1987.

> "Eventually, it capitulated: In 1982 it abandoned M1 targeting and in 1987 targeting altogether, as it felt that it could not control both the price of money (interest rates) and its quantity at the same time."
> — Princes of the Yen

## c. 1986 — Banks aggressively expand credit creation

From about 1986 Japanese banks aggressively expanded credit creation, with city bank loan growth averaging about 15 percent in the late 1980s while national income grew only half as fast, fueling unproductive speculation.

> "From about 1986 onward, banks increased credit creation aggressively. Loan growth of the city banks averaged about 15 percent in the late 1980s, and total loan growth remained above 12 percent most of the time."
> — Princes of the Yen

## February 1987 — Executive Board cuts the discount rate to 2.5 percent

In February 1987, under Ministry of Finance pressure, the Bank of Japan's Executive Board decided to reduce the official discount rate to the low rate of 2.5 percent.

> "In February 1987, the Executive Board decided, under MoF pressure, to reduce the ODR to the low rate of 2.5 percent."
> — Princes of the Yen

## February 1987 to May 1989 — Official discount rate held at 2.5 percent

The Bank of Japan maintained a low official discount rate of 2.5 percent from February 1987 to May 1989, often cited as the cause of the bubble, though the author argues interest rates had no stable relationship with asset prices.

> "It is often said that the low official discount rate of 2.5 percent, maintained from February 1987 to May 1989, was the cause of the bubble."
> — Princes of the Yen

## July 1987 — Fukui endorses continued monetary easing to implement structural reform

In July 1987, shortly after the second Maekawa report, Toshihiko Fukui, head of the department implementing window guidance, said the right central bank policy for structural transformation was to continue monetary easing and expand bank loans.

> "We saw above that the head of the department that implemented window guidance credit controls, Toshihiko Fukui, had said in July 1987, soon after the publication of the second Maekawa report, that suitable central bank policy to implement the structural transformation of Japan’s economy was to “continue with the monetary easing policy” and, explicitly, for “bank loans to expand.”"
> — Princes of the Yen

## 1989 — Death of Haruo Maekawa

Former Bank of Japan governor Haruo Maekawa died in 1989, but his chosen successors Mieno and Fukui remained in power at the central bank.

> "Maekawa passed away in 1989, but his successors remained in power."
> — Princes of the Yen

## December 1989 — Mieno's 'Christmas present' rate hike ends the bubble

Only a fortnight after becoming governor, Mieno raised the official discount rate in December 1989, the infamous Christmas present; asset prices began tumbling in 1990 and land prices eventually fell around 80 percent.

> "He decided to end the bubble and raised the official discount rate only a fortnight after becoming governor, delivering the infamous “Christmas present” of 1989. Asset prices, led by stock prices, began to tumble in 1990."
> — Princes of the Yen

## 1991 — EMEAP central bank club formed

In 1991 the eleven central banks of the East Asia and Pacific region formed the Executives' Meeting of East Asia-Pacific Central Banks (EMEAP), a low-profile club whose deputy governors met twice a year.

> "Already in 1991, the eleven central banks of the East Asia and Pacific region formed an exclusive club, called the Executives’ Meeting of East Asia-Pacific Central Banks, or EMEAP."
> — Princes of the Yen

## 1991 — Japan slides into its longest postwar recession

With paralyzed banks shrinking credit creation, Japan's economy slid from 1991 into the longest and deepest postwar recession since the 1930s, with unemployment at postwar records and probably more than five million jobs lost.

> "Thus, from 1991 onward, Japan’s economy slid into the longest and deepest postwar recession since the 1930s. Unemployment soared to postwar records."
> — Princes of the Yen

## 1991 to 1992 — U.S. recession of 1991 and rapid Fed reflation

After a credit boom turned to bust and bad debts paralyzed U.S. banks, real GDP contracted about 1 percent in 1991; the Federal Reserve printed money from 1990 onward and the economy had fully recovered by 1992.

> "In 1991, real GDP contracted by approximately 1 percent. How long this recession was going to last was in the hands of one institution—the Federal Reserve. It needed to print money. That is what it did, from 1990 onward."
> — Princes of the Yen

## July 1991 to September 1995 — Bank of Japan begins 1990s rate-cutting cycle

The Bank of Japan lowered the official discount rate ten times during the 1990s, starting with the first cut in July 1991 from 6 percent, reaching 1.75 percent by September 1993 and 0.5 percent by September 1995.

> "The Bank of Japan lowered the ODR ten times in the decade of the 1990s, beginning with the first reduction in July 1991, before which it stood at 6 percent. Until September 1993 it was lowered seven times, reaching 1.75 percent. The ODR was further lowered to 1.0 percent in April 1995 and to 0.5 percent in September 1995."
> — Princes of the Yen

## July 1991 — BoJ begins cutting the official discount rate

Starting with the first reduction in July 1991, when the rate stood at 6 percent, the Bank of Japan lowered the official discount rate ten times during the 1990s, reaching 1.75 percent by September 1993 and 0.5 percent by September 1995.

> "The Bank of Japan lowered the official discount rate (ODR) ten times in the 1990s, beginning with the first reduction in July 1991, before which it stood at 6 percent."
> — Princes of the Yen

## 1992 — "One Market, One Money" study published

In 1992 the European Commission published its commissioned study "One Market, One Money," which purported to demonstrate that central bank independence leads to low inflation and served as the scientific basis for the Maastricht Treaty.

> "Published in 1992 under the name “One Market, One Money,” the study purported to demonstrate that central bank independence leads to low inflation.14"
> — Princes of the Yen

## 1992 to 1994 — Four massive fiscal stimulus packages

Between 1992 and 1994 the Japanese government added four large fiscal stimulus packages totaling 45 trillion yen to regular spending, but without central bank credit expansion they failed to produce a recovery and only increased government debt.

> "Between 1992 and 1994, four massive fiscal stimulus packages amounting to ¥45 trillion were added on to regular government spending."
> — Princes of the Yen

## 1992 — High-powered money contracts despite falling rates

Although interest rates had been falling since 1991, the Bank of Japan's supply of high-powered money contracted for most of 1992, leading economist Iwata to warn that the central bank would create a recession unless it expanded the money supply.

> "Using this analysis, Iwata points out that the central bank tightened monetary policy too late and then failed to stimulate the economy for too long (while interest rates had been falling since 1991, the supply of high-powered money contracted for most of 1992).38"
> — Princes of the Yen

## 1992 — Maastricht Treaty lays foundations for European monetary union

The Maastricht Treaty of 1992 laid the foundations for monetary union in Europe and defined the role of a totally independent European Central Bank, becoming the model for central bank independence worldwide.

> "The most forceful case in favor of central bank independence was made in the Maastricht Treaty of 1992, which laid the foundations for monetary union in Europe."
> — Princes of the Yen

## 1992 — Sharp reduction in Japanese credit creation begins

The author identifies a sharp reduction in credit creation beginning in 1992, triggered by bad debts in the banking system, as the cause of Japan's recession.

> "It further demonstrated that the cause of Japan’s recession has been the sharp reduction in credit creation that began in 1992 and was triggered by the bad debts in the banking system."
> — Princes of the Yen

## 1993 to 1996 — Surge of private capital inflows into Asia

After capital account deregulation and central bank incentives, net private capital inflows into Asia surged from 54.3 billion dollars in 1993 to 98.3 billion dollars in 1996, largely as short-term foreign borrowing.

> "Net private capital inflows into Asia surged from U.S. $54.3 billion in 1993 (sharply up from U.S. $20.9 billion in 1992) to U.S. $98.3 billion in 1996.11"
> — Princes of the Yen

## 1994 to 1995 — Credit creation turns negative and nominal GDP shrinks

Bank credit creation turned negative in late 1994, producing negative nominal GDP growth in early 1995, the first such contraction in postwar history and the first since 1931.

> "Credit creation remained minimal and even turned negative in late 1994—resulting in negative nominal GDP growth in early 1995—for the first time in postwar history; indeed, the first time since 1931.14"
> — Princes of the Yen

## December 1994 — Matsushita appointed governor with Fukui as deputy

In December 1994 MoF alumnus Yasuo Matsushita succeeded Mieno as Bank of Japan governor, with BoJ insider Toshihiko Fukui as deputy governor; the author reports Matsushita was shielded from decisions on credit creation.

> "In 1994, Governor Mieno was followed by MoF man Matsushita. The deputy position went to BoJ insider Toshihiko Fukui."
> — Princes of the Yen

## 19 April 1995 — Yen hits historic high of 79.75 per dollar

Despite unprecedented intervention, the yen rose 20 percent from January to April 1995 and hit a historic high of 79.75 to the dollar on April 19, 1995, which the author attributes to the BoJ's sharp reduction of credit creation.

> "During the months from January to April 1995, the yen rose by 20 percent, hitting a historic high of ¥79.75/$ on April 19, 1995."
> — Princes of the Yen

## 1996 — Greenspan's irrational exuberance speech

In 1996 Fed chairman Alan Greenspan gave his famous speech on irrational exuberance, publicly suggesting he wanted to slow the economy even as the Fed kept increasing credit creation.

> "Thus Greenspan, through his interest rate policies, has publicly given the impression that he wanted to slow the economy most of the time from the mid-1990s onward, such as with his famous 1996 speech on “irrational exuberance.”"
> — Princes of the Yen

## 1997 — Asian financial crisis

In 1997 investors pulled out of Korea, Thailand, and Indonesia while central banks forced commercial banks to restrict credit; the asset bubbles burst and by late 1997 all three countries were insolvent.

> "In 1997, investors pulled out. Simultaneously, the central banks forced the commercial banks to restrict credit creation. The bubbles burst."
> — Princes of the Yen

## June 1997 to April 1998 — Revised Bank of Japan Law passed

In June 1997 a revised Bank of Japan Law was passed, effective April 1998, giving the central bank independence from the Ministry of Finance after half a century of subordination.

> "In June 1997, a revised Bank of Japan Law was passed, which became effective in April 1998. This finally gave the Bank of Japan what it had been struggling to gain for half a century—independence from MoF, and, for good measure, from anyone else (more on this in chapter 18)."
> — Princes of the Yen

## 1998 — Bank of Korea reflates sharply

In mid-1998 the Bank of Korea increased credit creation by the largest amount in twenty-five years, and Korean growth expanded sharply in the first quarter of 1999 with double-digit industrial production gains by mid-1999.

> "Credit creation by the Bank of Korea in mid-1998 shot up by the biggest amount in twenty-five years—quite parallel to the BoJ’s reflation. As a result, Korean economic growth expanded sharply in the first quarter of 1999."
> — Princes of the Yen

## March 1998 — BoJ sharply boosts credit creation

In March 1998 the Bank of Japan suddenly boosted credit creation to its highest level since January 1974, which was followed by the sharp economic recovery and stock market rise of 1999 before the taps were turned off again.

> "In March 1998, the Bank of Japan suddenly boosted credit creation sharply. Our index reached the highest level since January 1974, when the BoJ was supplying the funds for the 1970s real estate bubble."
> — Princes of the Yen

## 31 March 1998 — Bank of Japan begins rapid money creation

On 31 March 1998 the Bank of Japan suddenly began creating money at the fastest rate in a quarter century, one day before the new Bank of Japan Law took effect granting it legal independence; the injections drove the yen to 147 per dollar in mid-1998 and produced a surprise recovery in 1999.

> "The Japanese economy recovered temporarily in 1999, because the Bank of Japan suddenly—and, as it turned out, temporarily—switched on the printing presses on 31 March 1998, creating money at the fastest rate in a quarter century. One day later, the new Bank of Japan Law became effective and the Bank of Japan had achieved legal independence."
> — Princes of the Yen

## September 1998 — Mahathir imposes capital controls in Malaysia

In September 1998 Malaysian leader Mohammad Mahathir imposed controls on short-term capital movements, stabilizing the exchange rate while the central bank stepped up credit creation and the government cleaned up bank balance sheets without IMF-style reforms.

> "But in September 1998, Mahathir imposed controls on short-term capital movements and hence stabilized the exchange rate. Simultaneously, his central bank stepped up credit creation and the government implemented a program to clean up the balance sheets of banks."
> — Princes of the Yen

## 1999 — Bank of Japan withdraws credit in 1999

The Bank of Japan sharply reduced its credit creation in 1999, actively withdrawing credit for most of the year; the yen returned toward 100 per dollar and the 1999 recovery stalled in 2000.

> "The Bank of Japan reduced its credit creation sharply in 1999, actively withdrawing credit from the economy for most of the year. The yen moved back close to ¥100/$, and a year later the recovery of 1999 stalled."
> — Princes of the Yen

## 1 January 1999 — European Central Bank begins operations

The European Central Bank, described by the Maastricht Treaty as independent of any government or elected assembly, started operations as scheduled on January 1, 1999.

> "The treaty described the role and function of the European Central Bank (ECB), which started operations as scheduled, on January 1, 1999, and which is legally the most independent central bank in the world."
> — Princes of the Yen

## March 2001 — Bank of Japan announces quantitative easing

The Bank of Japan officially announced quantitative easing in March 2001, and in May 2001 significantly boosted its credit creation in a policy rivaling its record 1998 reflation.

> "We saw that in May 2001, later than its March 2001 official announcement of “quantitative easing,” the Bank of Japan once again boosted its credit creation significantly."
> — Princes of the Yen

## 19 March 2001 — Bank of Japan adopts quantitative easing

On March 19, 2001 the Bank of Japan performed a sudden policy U-turn and officially adopted quantitative easing, a policy it had claimed for a decade was impossible to implement.

> "The central bank performed a sudden policy U-turn on March 19, 2001, now officially pursuing what it calls a policy of “quantitative easing” despite the fact that it had claimed for a decade that such a policy was impossible to implement."
> — Princes of the Yen

## 19 March 2001 — Bank of Japan announces reserve targeting ('quantitative easing')

On March 19, 2001 the Bank of Japan announced it would switch from targeting the overnight call rate to targeting the quantity of banks' reserve deposits, a policy commonly called quantitative easing; its actual credit creation nevertheless fell in the following months.

> "On 19 March 2001, the Bank of Japan announced that it was switching from a policy of targeting the overnight call rate (they had already reached levels below 0.01 percent) and instead target the quantity of banks’ reserve deposits with the central bank (Bank of Japan [2001])."
> — Princes of the Yen

## June 2001 — BoJ shifts to expanding the quantity of credit

In June 2001 the Bank of Japan changed monetary policy again and sharply increased the quantity of its credit creation, which contributed positively to the economy in 2002 after the slump of 2001.

> "In June 2001, the central bank changed its monetary policy once more and sharply increased the quantity of its credit creation.17"
> — Princes of the Yen

## 2002 — ECB orders record shrinkage of Bundesbank credit creation

In 2002 the ECB ordered the Bundesbank to shrink its credit creation by record amounts; as money circulating in the economy shrank, demand fell and Germany moved into recession.

> "It ordered the Bundesbank to shrink its credit creation by record amounts in 2002. As the amount of money circulating in the economy shrank, demand fell and the economy moved into recession."
> — Princes of the Yen

## 2002 — Surprise recovery in late 2002

Following the Bank of Japan's renewed credit creation of 2001 and the usual time lag, industrial production, consumption, and real GDP staged a recovery by late 2002 that surprised most observers.

> "Given the normal time lag, this meant that by late 2002, industrial production, as well as domestic consumption, and hence real GDP, staged a recovery that surprised most observers."
> — Princes of the Yen

## 1 January 2002 — Euro cash introduced; national currencies abolished

On January 1, 2002, new euro paper money and coins were introduced across most of Europe as twelve countries, including Germany with its deutsche mark, gave up their national currencies.

> "On January 1, 2002, new paper money and coins were introduced in most of Europe. What still seemed an unlikely scenario to many observers as recently as the mid-1990s happened without major obstacles or upsets: Twelve European countries gave up their national currencies."
> — Princes of the Yen

## 25 November 2008 — The Federal Reserve launches quantitative easing

The Federal Reserve began buying large amounts of mortgage-backed securities and Treasury debt to support the economy. Quantitative easing became a standard tool of central banks after the crisis.