Before lockdown, Parliament approved up to $52 billion for the Government to use for its immediate Covid-19 response to try and keep the economy ticking. But, where is that money coming from?
One answer lies in government bonds and, ultimately, you.
Government bonds are issued to raise money. People can buy these bonds as an investment. Like a term deposit, they offer a fixed rate of interest for a fixed term until it reaches maturity when the principal is paid back.
Christian Hawkesby, the Reserve Bank assistant governor, said issuing government bonds in the financial market functioned like an IOU.
“It's not free money because when the Reserve Bank buys those government bonds we have to fund those,” he said.
“We're an investor like anyone else so we expect to be paid back when they mature.”
Mr Hawkesby added: “We're creating electronic money to buy government bonds.
“Through this process we create money. Not physical cash but electronic money.”
However, the idea of printing too much money was a radical idea before Covid-19 as it can cause inflation if it doesn’t reflect growth in goods production. So the price of the lost value of money ends up with the people.
The Reserve Bank said last month it could buy up to $33 billion worth of central and local government bonds to support the economy over the next 12 months. So far, it’s purchased $7 billion.
SHARE ME