In an unprecedented move five major central banks of rich nations including the Bank of England, the US Federal Bank, European Central Bank and the central banks of Canada and Switzerland have come together to inject new money into the global economy to ease the financial crunch that is threatening recession in the western economies.
Up to $110 billion in cash loans will be available to the world money market in the form of cash loans to be made available though auctions.
The pertinent question that now arises is whether the new money supply can uplift the growth trajectory of the global economies. The financial crises in the developed economies have assumed a global dimension with the financial institutions reluctant to lend money especially to each other.
The global implication of the US sub-prime crises that triggered the mortgage market and consequent financial crises could be gauged from the fact that for the first time in a hundred years a British bank, Northern Rock collapsed. Tight lending policies adhered to by western lending institutions to prevent further financial losses have arrested the growth rate of these economies.
Since the commercial banks of rich nations are interlinked with each other, they have now decided to move in unison to prevent a banking crisis turning in to a recession. The prices of the stocks of the financial and banking sectors are also showing poor performance.
If the current move of the major global central banks fails then their confidence will be at stake. The banks are currently holding lots of debt and their burden would only increase worsening the current situation.
Source:BBC
Image:Londonsguide
