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."
Why is helicopter money in news now?
  • 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.
Is helicopter money the same as quantitative easing?
  • 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.