The reverse of QE (above), this is the process whereby a central bank will try to reverse monetary stimulus and reduce the size of its balance sheet in the process.

There are several ways this can be achieved in practice – to avoid too much market disruption, one is to simply allow the bonds which have been purchased by a central bank under QE to mature and for that bank to then cancel the money it receives rather than use it to purchase further bonds. A reduction in the money supply of this type should help to mute inflation – or, at least, that is the theory.

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