The world's central bankers are strapping on some pretty exotic monetary gear these days as they try to prevent a global financial brush fire from becoming a full-blown economic recession.

Before September, monetary authorities — whether at the Bank of Canada, the U.S. Federal Reserve or the Bank of England — basically used interest rates to control inflation and economic activity.

While tricky in theory, the instrument operated in a straightforward way: raise interest rates and slow economic activity, or vice-versa

Canada's Carney used interest rates to stop inflation (Dwayne Brown/Bank of Canada)

The goal of these national banks was to keep rising prices under control, a skill at which the Bank of Canada, now under governor Mark Carney, has excelled for years.

In that world, central banks tended to err on the side of boosting rates too high and too long, rather than risk the reappearance of accelerating price hikes that, in turn, might necessitate slamming on the economic brakes even harder.

Wiping the blackboard clean

September's bankruptcy of brokerage house Lehman Brothers changed everything.

At first, Washington seemed to ignore the failure of the prominent Wall Street firm.

U.S. Treasury Secretary Henry Paulson and the economic brain trust in the White House gambled that the marketplace would sort through the banks and investment houses and ascertain which firms were on solid footing.

Then investors would buy those stocks, ignore the weak equity issues and right the listing financial system.

Critics say U.S. Treasury Secretary Paulson waited too long to act in wake of Lehman bankruptcy (Pablo Martinez Monsivais/Associated Press)

It turned out to be the wrong chance to take at the wrong time.

Instead of taking a cleansing breath after Lehman closed its doors, investors ran screaming for the financial exits, selling stocks of almost every company — good or not — as they pushed out of the market.

Grab a shovel

As panic took hold of Wall Street and almost every other equity market, central bankers started pumping new money into the financial systems of various countries as fast as possible.

The amounts involved grew so quickly that what were shocking figures at the beginning of the crisis became mundane as more companies ran into financial trouble.

On Sept. 18, for instance, the Bank of England added $52 billion Cdn in new liquidity for its banks.

Oct. 1 saw the British central bank push out another $39 billion in cash to give banks and other firms the monetary wherewithal to lend money.

Seven days later, the bank extended a whopping $81 billion in additional short-term credit for its financial institutions.

During this period, the U.S. Congress created a $700-billion US bailout package that would allow the government to invest in private-sector financial institutions and buy up toxic mortgage-backed commercial paper.

Printing money

Whether considering the U.S. Federal Reserve, the Bank of Canada or one of the other central banks, most of these methods of getting more liquidity into financial markets come down to one thing — printing money.

Before the 1970s, most governments needed to buy gold in order to print more money because most national currencies were tradable for fixed amounts of the bullion.

Since most administrations were loath to devalue their currencies, the ability of central banks to churn cash from their own printing presses was limited.

Dumping gold standard let central banks print more money (CBC)

Nowadays, many countries have a floating exchange system, not linked to national gold reserves.

As a result, fears of higher inflation or a devalued currency now are the main restraints on administrations and central banks that want to print more money.

And since September, governments and investors have become so worried about a slowing economy that rising prices and a slipping dollar or pound don't appear to be of great concern.

Hitting the cash accelerator

Here are some of the ways central banks inject cash into the global financial system:

Bank rate: This key interest rate is what most people recite when they speak about the Bank of Canada cutting borrowing costs. The bank rate is how much the country's central bank charges to lend to major financial institutions overnight.

Purchase and resale agreement (PRA): Also known as "a reverse repo," in this transaction a central bank buys securities from private-sector institutions for a specified time, at which point the deal is reversed.

Typically, a central bank will hold on to the security for as little as a day or as long as a month. The private institution then buys the debt instrument back from the national bank.

Since September, the Bank of Canada has expanded the type of securities it would accept as collateral to include the dreaded asset-backed commercial paper.

Sale and repurchase agreement (SRA): This is similar to a purchase and resale agreement, except the Bank of Canada acts as seller and the private-sector firm is the buyer.

"A PRA puts liquidity in [financial markets], an SRA takes it out," said one Bank of Canada official.

Term auction facility: The U.S. Federal Reserve sells cash to the highest bidders among interested private financial institutions. The firms then repay the money after a set period.

The U.S. central bank has auctioned off $376 billion in additional liquidity since the end of August.

The cover ratio is a comparison of the dollar amount of private-sector bids and the reserves the Federal Reserve offered for sale. The higher the ratio, the tighter the credit market.

Interestingly, the cover ratio has decreased in the five auctions the Fed has held in the past two months, an indication of an easing credit market.

Standing liquidity facility: What might sound like a piece of plumbing in fact is overdraft protection for private banks. Firms that are experiencing a cash crunch measured in hours, rather than days, can apply for this cash.

Unlike other methods for increasing liquidity, the standing facility is essentially a way of helping a bank or other financial institution through a one-day rough fiscal patch rather than a way by which the Bank of Canada can assist the overall financial system.

Asset-backed Commercial Paper Money Market Mutual Fund liquidity facility: Possibly the longest acronym in financial history, the ABCP MMMF liquidity facility is a U.S. Federal Reserve tool for assisting certain kinds of mutual funds.

The central bank will provide cash through this facility in return for the funds' ABCP holdings, instruments that can't realistically be sold in another market.