The digital era · 2000–today
2020
The pandemic response
The Fed cuts rates to zero, restarts bond buying and drops the reserve requirement.
In March 2020, as the pandemic hit, the Federal Reserve cut rates to near zero, began buying bonds on a vast scale and set banks' reserve requirement to zero.
💡 Why it made sense then
The economy was shutting down almost overnight, and the Fed moved to keep credit flowing.
Ideas it gave us
- 🌍 Quantitative easing
Quantitative easing is when a central bank creates money to buy large amounts of bonds, pushing long-term interest rates down to support the economy when short-term rates are already near zero.
- 🏦 Fractional reserve banking
Fractional reserve banking is the system in which banks keep only part of their deposits as cash reserves and lend out the rest, which creates new money in the economy.
Practise with $10,000 in play money
Free. No real money involved.