Helicopter money, also known as a helicopter drop, is an unconventional monetary policy tool that involves printing large sums of money and distributing it to the public, aiming to boost economic output and inflation.
The concept is often metaphorically explained by imagining a central bank dropping money from helicopters onto the people below, hence the name "helicopter money."
The theory behind helicopter money is that money handed to the public increases consumer spending, which in turn supports economic output. This strategy was first proposed by economist Milton Friedman.
Helicopter money can be implemented in various ways, such as:
Printing new money and distributing it: The central bank creates reserves by purchasing government securities from commercial banks and distributing the money directly to the public.
Tax cuts: The government can reduce taxes to increase consumer spending, which ultimately boosts economic output.
Increasing money supply: Helicopter money aims to increase the money supply by distributing currency to the public, while quantitative easing increases the money supply by purchasing government securities.
Helicopter money is typically used during times of economic hardship, such as when interest rates hit zero or a recession occurs. It is designed to stimulate the economy, encouraging spending to help support businesses and bring some stability to the market
However, some critics argue that helicopter money could threaten the principle of central bank independence or may not be as effective as other monetary policy tools.
The idea remains largely theoretical and has generated discussions and debates among economists and policymakers. The potential risks and unintended consequences of implementing such a policy, including concerns about inflation and long-term economic stability, are among the reasons why helicopter money has not been widely adopted.
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