Jeremy Warner: Darling wants say on 'quantitative easing'

Outlook Back in Blighty, what to my mind seems a somewhat manufactured row is developing between the Treasury and the Bank of England over who would be responsible for determining the scale and manner of "quantitative easing" should the continued deterioration in the economy require it. This is the technical term used to describe the printing of money in an attempt to tackle a deflationary debt spiral.

There are lots of ways this could be done. One is for the central bank to buy up government debt, as the US Federal Reserve has already begun to do in the US, with the effect that the supply of money in the economy is increased. The same effect is achieved by buying up other forms of debt, such as mortgage-backed securities or corporate bonds. Alternatively, the Government could underfund the budget deficit, which would help to solve the problem of having to issue record quantities of gilts.

In an interview, Alistair Darling, the Chancellor, has said he wants to have a say in any quantitative easing and would work "hand in hand" with the Bank of England if the authorities determine that this is the right approach. On the face of it, this would compromise the independence of the Bank of England in determining monetary policy. You might as well have the Chancellor back in control of setting interest rates, critics say, and we all know where that leads.

Well, maybe, yet the fact remains that quantitative easing is uncharted waters which would amount to a dramatic new departure in macroeconomic policymaking. It therefore seems right that the Government should take ultimate responsibility for such a potentially high-risk strategy. If we are going to debase the coinage, the Government has to be held fully responsible. It cannot be done by unaccountable officials at the Bank of England, however brainy they might be. What's more, quantitative easing only comes into play when bank rate reaches zero and conventional monetary policy has therefore run out of road. Notwithstanding today's expected further rate cut from the Bank of England, we are not there yet, so for the time being the debate is academic.

And in any case, if the Bank really thought that pump-priming the economy with freshly minted notes was a danger to the inflation target, it could presumably raise interest rates and hold the Government in check that way. It is obviously in everyone's interests that the Treasury and the Bank of England reach a consensus on when and how to apply quantitative easing. If they disagree, then that really will be a story.