Helicopter money

Helicopter money is a tool of unconventional monetary policy that has been proposed as an alternative to quantitative easing (QE) when interest rates are close to zero and the economy remains weak or enters recession. Although the original idea of helicopter money describes central banks making payments straight to individuals, economists have used the term 'helicopter money' to refer to a wide range of different policies, including the 'permanent' monetization of budget deficits which is nothing more than the old-fashioned idea of debt monetization – with the additional element of attempting to shock beliefs about future inflation or nominal GDP growth. A second set of policies, closer to the original description of helicopter money, and more innovative in the context of monetary history, involves the central bank making direct transfers to the private sector financed with base money, without the direct involvement of fiscal authorities. This has also been called a citizens' dividend or a distribution of future seigniorage. The idea was made popular by the American economist Milton Friedman in 1969 and reinforced in contemporary times by former Federal Reserve chairman Ben Bernanke.

Although very similar concepts have been previously defended by various people including Major Douglas and the Social Credit Movement, Nobel winning economist Milton Friedman is known to be the one who coined the term 'Helicopter Money' in the now famous paper “The Optimum Quantity of Money”, where he included the following parable:

Let us suppose now that one day a helicopter flies over this community and drops an additional $1,000 in bills from the sky, which is, of course, hastily collected by members of the community. Let us suppose further that everyone is convinced that this is a unique event which will never be repeated.

Originally used by Friedman to illustrate the effects of monetary policy on inflation and the costs of holding money, rather than an actual policy proposal, the concept has since then been increasingly discussed by economists as a serious alternative to monetary policy instruments such as quantitative easing. According to its proponents, helicopter money would be a more efficient way to increase aggregate demand, especially in a situation of liquidity trap, when central banks have reached the so-called 'zero lower bound'.

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