Helicopter Money

Helicopter Money, also popularly known as the helicopter drop is an unconventional and a hypothetical monetary policy tool involving the printing of huge amount of money to be distributed to the public for stimulating the economy. It is a metaphorical term alluding to unconventional measures followed to kickstart the economy during deflationary periods.

In April 2020, the CM of Telangana remarked that “helicopter money” can be used to revive the economy in the corona pandemic.

This topic is relevant for IAS exam aspirants.

Origin of the term “Helicopter Money”

Milton Friedman a noted economist was the first one to use the term “Helicopter Money”. However, the term gained popularity in 2002 when the then US Federal Reserve Governor Ben Bernanke made a reference to the term in his speech.

What is Helicopter Money

  • Despite the fact that the original idea of a helicopter drop sets out a description of payments being made directly to the individuals, economists make use of the term while referring to a wide range of policy ideas like the permanent monetization of budget deficits including elements of attempting to shock beliefs regarding future inflation or the nominal growth of GDP, with the view of changing expectations.
  • Another series of policies, similar to the original description of helicopter money, and more innovative in the context of monetary history, involves the central bank making direct transfers to the private sector financed with base money, without the direct involvement of fiscal authorities. This has also been referred to as a citizens’ dividend or distribution of future seigniorage.
  • It is sometimes suggested as an alternative to Quantitative Easing when the economy is in a liquidity trap (a state of the economy where the interest rates are nearing zero and recession persists in the economy).
  • According to the proponents of the term, it is a efficient way for increasing the aggregate demand, specifically in the situation of a liquidity trap, when the central bank has reached the Zero Nominal Lower Bound
  • Although the original definition of helicopter money describes a situation where central banks distribute cash directly to individuals, more modern use of the term refers to other possibilities, such as granting a universal tax rebate to all households, financed by the central bank.
  • Helicopter money can lead to over-inflation

FAQ about Helicopter money

Why is helicopter money bad?

Most economists and investors fear that the helicopter money is harder to drain from the system, and the excess money could spur long-term inflation over time.

What is the difference between quantitative easing and helicopter money?

While helicopter money increases monetary supply by distributing large amounts of currency to the public, quantitative easing increases supply by purchasing government or other financial securities to spark economic growth.

It is important to keep reading newspaper articles and editorials on this subject as it can be asked directly or indirectly in the UPSC 2021.

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