The money created to do QE could have been spent on green investments?

Paul de Grauwe makes the above claim in an article entitled “Green Money Without Inflation” published by Social Europe. To be more accurate, he claims that as bonds bought by the ECB as part of their QE effort mature, they can be replaced with what he calls “Environmental bonds”, with the relevant money being spent on green investments. See under his heading “ECB Options”.

Well certainly some QE bonds can be replaced with environmental bonds, but it is very debatable as to exactly what proportion can be “replaced”. Reason is this.

The inflationary effect of printing £X of money, spending that money on environmental bonds, with the money  then being spent on solar panels, better home insulation or whatever is much the same as far as  inflation goes as printing money and spending on any other type of public investment. Moreover, there is little difference between that and allocating the money to public current (as opposed to capital) spending. That is, the money in both cases goes towards hiring labour, purchasing materials etc which are then used to make solar panels, build schools, upgrade the law enforcement system, etc etc.

In contrast, the inflationary effects of conventional QE are much less. Indeed, as de Grauwe himself puts it in reference to conventional QE, “All that money has gone to financial institutions which have done very little with it.”

Conventional QE (certainly in the US and UK) has consisted almost entirely of printing money and buying up government debt. But as Martin Wolf (chief economics commentator at the Financial Times) rightly said, there is little difference between base money and government debt (a point which MMTers have also been making for a long time). That is particularly true in the case of short term low interest yielding government debt. Indeed, base money is in effect zero interest yielding, zero term (to maturity) government debt.

In short, conventional QE is not all that different to giving everyone two £10 notes in exchange for their £20 notes, the inflationary effect of which would be around nothing.

Ergo, and contrary to de Grauwe’s claims, maturing QE bonds cannot be replaced Euro for Euro with environmental bonds.