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.

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 Federal Reserve Governor Ben Bernanke made a reference to the term in his speech.

Helicopter Money – In detail:

  • 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.

This article speaks about Helicopter Money, its origin. The article explains this particular monetary policy tool in great detail. Also known as helicopter drop, it is an important concept for the UPSC Exam 2019 and falls under General Studies Paper 3 – Economy. It is important to keep reading newspaper articles and editorials on this subject as it can be asked directly or indirectly in the IAS Exam. Since there is a plethora of information on this subject, candidates should keep a note of all the points and material they have on this subject neatly classified.

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