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The Helicopter Money

Introduction

The Country of Newzealand has considered in distributing free cash directly to individuals as a purpose of policy stimulus in order to help to boost the economy reeling from a COVID-19 pandemic as a driven contraction, says Finance Minister Grant Robertson. During a press conference, Robertson was enquired to share the details about the government’s plan for launching ‘Helicopter Money’ - whether it would be the central bank printing money which distributes it or the government increasing its borrowing and handing it out.


Robertson, who explained the concept that it is not something that has got its level of discussion at all. He also added, on making sure the fiscal policy would remain as the role of government. The extra cash which is a boon for Newzealand’s export-reliant economy would be expected to contract over a massive 21.8 percent in the current quarter as to the shock from the outbreak and tough measures to contain it. As the government is splashing out cash, the appearance has been contained with the coronavirus after one among the stringent lockdowns which lasted more than a month.


Concept of Helicopter Money

The idea of helicopter money or dumping of cash unexpectedly onto a struggling economy, was a slow gaining currency among economists and policymakers as the pandemic looks to inflict the wrong blow to global growth since the Great Depression in the year of 1930s.


None of the wealthy countries have embarked on it, through the risks such as the central bank independence and the risk of flaring long term inflation. In a helicopter money drop, the central bank will directly increase the money supply and via the government distribute it to the new cash to the population with the core objective of boosting demand and inflation.


It is an unconventional monetary policy tool that involves the distribution of large sums of money to the public in order to stimulate the economy during deflationary periods. The helicopter money goes back to US economist and Nobel Prize Laureate Milton Friedman, who had been the most influential academic representative of the idea involving monetarism.


Friedman, who used his famous analogy of a helicopter: that one day a helicopter who files over our hypothetical long stationary community and drops additional money from the sky. According to Friedman, the final equilibrium of money supply and demand will be a nominal income and the amount of money dropped by the helicopter with the precise flow of real goods and services.


There are comparative methods in which helicopter money to quantitative easing differs. However, Quantitative Easing is a strategy which is used by central banks to increase the supply of money by purchasing bonds. The money can be taken out of the system later if needed by selling the assets that QE buys. While the Quantitative Easing is reversible by nature, it loses its nature. Some experts argue that it would also have a negative impact on the public sector (or central bank) balance sheets.


While coming to practical terms, there are as many proposals for the distribution of helicopter money, which may entail fiscal policy measures, such as government bonds or tax relief for the private household. Some empirical studies reflect that the tax rebates the positive macroeconomic effects in certain countries.


Telangana Chief Minister Pitches for Helicopter Money


In the month of April, amidst the national lockdown, Telangana Chief Minister K.Chandrashekar Rao pitched to the Centre and the Reserve Bank of India to implement the concept of helicopter money and quantitative easing. Observing that there is a fall in revenues of both the state and central governments against the backdrop of the unpredictable coronavirus crisis, Rao told that a policy of quantitative easing which is probably known as QE, followed all over the world as it is the only way to deal with the situation.


REFERENCE

  1. Helicopter-Money-Issues/manorama2020.

  2. www.economictimes.com/helicopter-money.

  3. www.civilsdaily.com/helicopter-money.

  4. www.investopedia.com/helicopter-money-issues.

ABOUT THE AUTHOR

Vijayalakshmi Raju, Final year law student BA LL.B (Honours) from Dr. Ambedkar Global Law Institute Tirupati, A.P (India).

You can contact at https://www.linkedin.com/in/vijayalakshmi-raju-bb03b7170

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