In the wake of the COVID-19 pandemic, in order to prevent economic collapse, central banks around the world have almost all expanded their balance sheets, providing limitless market liquidity. Unlike our experience in the 20^th century, this has not resulted in price surges, but rather a soaring stock market and housing prices. This marks the beginning of an "era of money printing," which will rewrite the boundaries between textbook monetary and fiscal policies and reshape finance for decades to come.

Traditionally – i.e. in Monetary Policy 1 (MP1) – interest rates are used to control the money supply. In MP2, quantitative easing, the central bank purchases government debt. This time, with MP3, central banks have not only purchased government bonds, but also corporate debt and ETFs, increasing the money supply while providing infusions for struggling businesses. In particular, even as the US Fed was focused on balance sheet shrinkage following the previous QE, it suddenly reversed course to pursue unlimited debt purchases and helicopter money. Both the speed and the breadth of this monetary policy produced "shock and awe" in the markets, immediately reshaping our concepts of risk and return.

The direction of the global economy may be difficult to forecast in the money printing era, but it’s clear that rates could stay low for an entire generation, which could adversely affect the financial industry. Banks (which rely on interest spreads for profits) and insurance companies (with long-term products) must move swiftly to address the challenge and begin adjusting their product lines.

In addition, individuals’ wealth will be directly affected. Although Taiwan has not (yet) launched so-called MP3, in order to maintain the stability of its exchange rate, it can’t avoid entering the money printing competition. In particular, the central bank holds large amounts of foreign exchange deposits, which presumably includes public debt in countries with monetization, and private debt in zombie companies. It will be important to adjust our cross-border financial risk management in order to prevent the spread of credit epidemics from other countries.

These low interest rates may also affect the views of the next generation on risk. When the possibility of bankruptcy reflects in returns of only 5% or 6%, will people become more or less willing to bear risk?

This era of money printing will challenge banks and the real economy. We’ll have to wait for new textbooks to explain its big-picture dynamics. Looking back at the history of economic thought, though, many lessons have only been learned at a great price. Money printing will impact everything about financial operations and government policymaking. Industry, government, and academia should prepare as soon as possible in order to get their bearings and find a way forward.