What is helicopter money?
What is helicopter money?
With
no quick escape in sight for Covid-ravaged economies, authorities the
world over are going back to the drawing board to find strategies to
deal with this 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.
Here we attempt to answer a few relevant questions about helicopter money.
..
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.
Here we attempt to answer a few relevant questions about helicopter money.
..
Helicopter money is the term used for a large sum of new money that is
printed and distributed among the public, to stimulate the economy
during a recession or when interest rates fall to zero. It is also
referred to as a helicopter drop, in reference to a helicopter
scattering supplies from the sky.
Helicopter money vs quantitative easing
Helicopter money is an unconventional alternative to quantitative easing,
but both aim to boost consumer spending and increase inflation. 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.
Examples of helicopter money
If a country faces slow or no growth, it could consider a helicopter drop. For example, in 2016, Japan considered using helicopter money to assist with the country’s slowing growth.Financial markets showed concerned with the decision, as participants feared hyperinflation and currency devaluation. So, the Bank of Japan (BoJ) opted for an alternative method to increase monetary supply. This included different partnerships and purchases such as government bonds, infrastructure outlays and payments to lower-income earners.
Pros and cons of helicopter money
Pros of helicopter money
Helicopter money does not rely on increased borrowing to fuel the economy, which means that it doesn’t create more debt and interest rates can remain unchanged. Generally, helicopter money boosts spending and economic growth more effectively than quantitative easing because it increases aggregate demand – the demand for goods and services – immediately.While government money drops that come from debt might not boost consumer spending, due to the debt needing to be repaid, it is often thought that ‘money finance’ will stimulate the economy.
Cons of helicopter money
Unlike quantitative easing, using helicopter money as a tactic is not reversible, and many argue that it’s not a feasible solution to revive the economy.A country’s central bank sets its interest rates to reach economic growth targets. However, a helicopter drop means that a central bank cannot use interest rates to recover any costs, because the money is not linked to a borrowed asset (loan). Instead, the money is given directly to the public. This may lead to over-inflation and cause damage to the central bank’s financials.
One of the main risks associated with helicopter money is that it could lead to a significant devaluation of the currency on the foreign exchange market. As more money is printed and supply increases, the value of the domestic currency could significantly decrease. It could also discourage speculators from buying the currency as it is less likely to perform well.
With
no quick escape in sight for Covid-ravaged economies, authorities the
world over are going back to the drawing board to find strategies to
deal with this 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.
Here we attempt to answer a few relevant questions about helicopter money.
..
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.
Here we attempt to answer a few relevant questions about helicopter money.
..
With
no quick escape in sight for Covid-ravaged economies, authorities the
world over are going back to the drawing board to find strategies to
deal with this 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.
Here we attempt to answer a few relevant questions about helicopter money.
..
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.
Here we attempt to answer a few relevant questions about helicopter money.
..
1 Comments
ReplyDeleteThanks for sharing valuable information.
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