Industry Voice: Is helicopter money on its way?

There is a view that central banks do not have the tools to respond effectively to the next economic slowdown, is helicopter money the answer?

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Industry Voice: Is helicopter money on its way?

Helicopter money and QE have something in common in that they both rely on central bank "money printing." But this is where the similarities end. Under QE, the central bank purchases assets, government‑issued or otherwise, to push down interest rates. In doing so, it expands both its assets and its liabilities. The decision to pursue a QE strategy is made by the central bank independent of the government's fiscal policies.

Helicopter money is different in that it is simultaneously a fiscal and a monetary operation. Under helicopter money, the central bank prints money and donates the newly created funds, free of charge, to the population. That is, it expands its liabilities, but it does not acquire any assets. Consequently, under helicopter money the central bank's equity position is eroded and it loses operational independence as the money printing exercise is driven by politicians.

In most developed economies, it is generally accepted that central banks should remain independent to prevent monetary policy from falling victim to the electoral cycle — in other words, to stop politicians from trying to win elections by making short‑term decisions that have negative consequences later.

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