Helicopter money requires central banks to make choices they cannot make while undermining their independence and inflation-targeting mandate. Attempts at explicit fiscal coordination may not be feasible and may create unresolvable conflicts between central banks and political governments.
In the post-financial crisis world, unconventional monetary policy has become so mundane that the name is a contradiction in terms. Everybody does it, few know when they’ll stop it and it has probably been stretched beyond the scope of its abilities. The frustration brought about by the realization of the latter point is such as to make it now popular to consider a more direct version of quantitative easing.
What Is Helicopter Money?
‘Helicopter Money’ (HM) is an idea named after a parable of monetary policy described by Milton Friedman in 1969. At its core is the idea of bi-passing the intermediation of the financial system in order to give cash created by the central bank directly to consumers. After lying dormant for decades, the idea received attention in 2003 when it was discussed by Ben Bernanke in relation to Japan and again by then-EBRD Chief Economist Willem Buiter.
However, it is only as a result of the recent failures of the already unorthodox liquidity traps they find themselves in that the idea has been gaining traction in policy and financial research circles. Among others, Adair Turner, Willem Buiter, and strategists at Deutsche Bank, have recently advocated the policy. The fact that it was not outright.
This post was published at FinancialSense on 09/23/2016.
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