QE: A Happening Term these days

QUANTITATIVE EASING

The term Quantitative Easing (QE) is in news from many a days and I couldnt understand what it means so?...and I thought there may be many like me who are not aware of this term.  So lets take a look of it as to what it means??????

QE describes a form of monetary policy used by central banks to increase the  supply of money in an economy when the bank interest rate, discount rate and/or interbank interest rate  are either at, or close to, zero.

A central bank does this by first crediting its own account with money it has created ex nihilo ("out of nothing". It then purchases financial assets, including government bonds and corporate bonds, from banks and other financial institutions in a process referred to as open market operations.

The purchases, by way of account deposits, give banks the excess reserves required for them to create new money by the process of deposit multiplication from increased lending in the fractional reserve banking system. The increase in the money supply thus stimulates the economy.

Risks include the policy being more effective than intended, spurring hyperinflation, or the risk of not being effective enough, if banks opt simply to pocket the additional cash in order to increase their capital reserves in a climate of increasing defaults in their present loan portfolio.