What is helicopter money ?
What is helicopter money and why is it in news?
- This is an unconventional monetary policy tool.
- It involves printing money and distributing it to the public.
- 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."
- 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.
- Under such a policy, a central bank "directly increase the money supply and, via the government, distribute the new cash to the population with the aim of boosting demand and inflation."
- With the coronavirus-hit economy falling deeper and deeper into a chasm with each passing day, Telangana chief minister KC Rao said helicopter money can help states comes 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, Rao said.
- To counter (economic crisis) this we need a strategic economic policy.
- RBI should implement quantitative easing policy.
- This is called Helicopter Money.
- This will facilitate the states and financial institutions to accrue funds.
- We can come out of the financial crisis.
- Release 5 % of funds from the GDP through Quantitative Easing Policy.
- 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 sure means printing money to monetise government deficits, but the govt 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.
- Helicopter money is also different from a central bank directly financing the debt of a government.
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