Authorities all over the world are going back to the drawing board to find strategies to deal with Covid-19 nightmare. One such strategy doing the rounds is 'Helicopter Money'.
It basically means non-repayable money transfer from the central bank to the government. It seeks to goad people into spending more and thereby boost the sagging economy.
What is Helicopter Money?
This is an unconventional monetary policy tool aimed at bringing a flagging economy back on track. It involves printing large sums of money and distributing it to the public.
American economist Milton Friedman coined this term. It basically denotes a helicopter dropping money from the sky. Friedman used the term to signify "unexpectedly dumping money onto a struggling economy with the intention to shock it out of a deep slump.
Under such a policy, the central bank directly increases the money supply and, via the government, distributes the new cash to the population with the aim of boosting demand and inflation.
It refers to a last resort type of monetary stimulus strategy to spur inflation and economic output.
Why is Helicopter Money in the news now?
With the coronavirus-hit economy falling deeper and deeper into a chasm with each passing day, Telangana chief minister KC Rao today said helicopter money can help states come out of this morass. He asked for the release of 5% funds from GDP by way of quantitative easing (QE). QE, a policy followed all over the world, is the only way to deal with the situation. RBI should implement a quantitative easing policy, it’s called Helicopter Money. This will facilitate the states and financial institutions to accrue funds. We can come out of the financial crisis.
Is helicopter money the same as quantitative easing?
Quantitative easing also involves the use of printed money by central banks to buy government bonds. But not everyone views the money used in QE as helicopter money. It means printing money to monetise government deficits, but the government has to pay back for the assets that the Central bank buys. It's not the same as bond-buying by central banks "in which bank-owned assets are swapped for new central bank reserves. Helicop
ter money is also different from a central bank directly financing the debt of a government.
PEPPER IT WITH
Deficit financing, Quantitative Measures, Qualitative Measures
Helicopter drop is an expansionary fiscal policy that is financed by an increase in an economy's money supply & to jump start the economy during deflationary periods.