Definition of cheap money

The term cheap money refers to borrowers' ability to access funds at low interest rates. The availability of cheap money is blamed for the huge accumulation of debt at both national and household levels in developed countries.

As those same countries struggled to extricate themselves from recession following the financial crisis of 2007-2008 their central banks adopted measures, including quantitative easing, that would make more cheap money available in the hope that it would stimulate lending as a means of boosting the economy.

 

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Despite criticism of the policy of creating more  cheap money, Ben Bernanke, chairman of the US Federal Reserve, argued in February 2013 that although a prolonged period of low interest rates could damage financial stability, low interest rates also served to reduce risk in the system by encouraging firms to rely on longer term funding. Cheap money would also make it easier to service existing debt.

Meanwhile, at the beginning of March 2013 a Bank of England scheme to pump £100bn into households and businesses, the Funding for Lending Scheme, appeared to be having little effect.