In 2020, Sebastian Mallaby of the Council on Foreign Relations announced the beginning of the “age of magic money,” in which advanced economies would “redefine the outer limits of their monetary and fiscal power.”

By July 2022, Mallaby was predicting that this age was coming to an end. But, while most major central banks are now reversing quantitative easing and raising interest rates, China may need to head in the opposite direction.

Observers often forget that QE was invented by the Bank of Japan in 2001 as a tool for dealing with balance-sheet deflation. Other tools included a zero interest rate and forward policy guidance. The BOJ’s balance sheet expanded from 20% of gross domestic product in 2001 to 30% by 2006, fueled mostly by purchases of Japanese government securities.