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>But what if the central bank instead buys government bonds from banks?...The banks would have to just sit on the extra cash.

Which is exactly what is happening - 724.6 billion excess reserves from 1.8 billion a year ago.

So how does the central bank buy bonds from households?

TK: (TKR, by any chance??) That is exactly what I was thinking when I wrote that bit. And that was the question I was asking myself. But then my brain got tired.

But "household" does not literally mean household. It just means anything other than a bank (a financial institution whose liabilities are media of exchange, like demand deposits). So "household" could mean "mutual fund", or "pension plan", for example.

But Nick, at least in the UK, the BoE does buy gilts from hedge funds, real money and other institutional investors. They're not just buying them from banks.

Adam: that makes sense to me, but I did not know if it were true. Did "QE" make a difference in who sold the Bank of England the gilts?

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