Helicopter Drop (Helicopter Money)
Candlefocus EditorAt an extreme, the central bank could print actual currency notes and literally drop the cash from a helicopter. In the current context, where monetary transmission channels involve much more technology, ‘helicopter money’ often refers to direct payments from the central bank to households, or central bank subsidies to banks in order to enable them to offer cheaper loans.
In response to the Covid-19 pandemic, many governments have resort to using ‘helicopter money’ as a tool for economic stimulation. These governments supply fiscal and monetary measures, including direct payments to individuals, cheap loans for businesses, and subsidy programs designed to increase consumer demand.
In the US, one of the government's measures was to provide a one-time payment of $1,200 to eligible individuals. The payments were made by direct deposit, and while this could be seen as cash handouts, the money instead was deposited in accounts, similar to digital currency remittances.
In Europe, governments have awarded subsidies to businesses, including cash grants and loans. In addition, many countries also devised schemes designed to increase consumer demands, such as guaranteed loans to buy products, enabling small businesses to hire workers, and incentivizing people to spend money in local economies.
In some countries, such as the UK, banks were given access to excess funds for lending purposes, which could be seen as a form government-sponsored helicopter money. Other countries implemented schemes to increase their citizens’ income, such as providing direct payments to people on low incomes, or refunds for certain taxes.
Although the concept of ‘helicopter money’ has been around for many years, its use during the current crisis has highlighted the need for effective communication and coordination between central banks and governments. It has demonstrated the importance of partnership between fiscal and monetary policy to help protect economies from deep and prolonged recessions.
When considering the use of helicopter money, it is important to bear in mind that, while it can have positive short-term effects, it can also have long-term negative implications, such as fuelling inflation, reducing savings and destabilizing the currency. Therefore, its use should be carefully and strategically designed, based on clear evidence and with a focus on long-term economic and fiscal objectives.