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Money supply is not considered good for the currency. When QE plans were rolled out, sterling fell sharply (Dailymarket.com, 2009).As per the theory, if the production increases after the money supply, value of the currency will increase and Bank of England can restore the reserve back by raising the interest rate.

The worst case scenario could be of hyperinflation and a collapse of the British currency / economy along the lines of where Iceland is today which has seen a collapse of some 30% in its annual GDP.(NadeemWalayat, 2009)

CONCLUSION

It was a year before that MPC had started with large scale asset purchase. The move to quantitative easing evoked mixed reactions, some even predicted it this might result in inflationary tears. Few academics had questioned whether it would have any impact at all or not.

There exists ample economic arguments as to why in the actual world, injecting money into the economy would most likely help achieving that stimulus. Numerous evidences exists, few relatively hard and some rather circumstantial that QE is finally having its desired impact. Asset prices are improving substantially, organisations have achieved record recourses to debt and equity markets leading to greater confidence and fuelling expectations of greater inflation.

Analysis of the financial crisis created many unanswered questions for the theory and implementation of monetary policy. A year after achieving effective lower bound of interest rates and implementing QE, there still remains a lot to be learnt by policy makers and academics. A classics example would be the forced devaluation of currency by China, to gain maximum benefits from the export driven economic policy and a capitalist government which probably leads to destabilising the entire global financial market.