Helicopter Money

The Concept of  Helicopter Money was coined by popular american economist Milton Friedman in 1969 in his paper “The Optimum Quantity of Money” for the governmments looking to lift their economies out of a slum.

☛ What is  Helicopter Money?

➜ Helicopter money were proposed as an alternative to Quantitative Easing (QE) when interest rates are close to zero and the economy remains weak or enter recession.
The term 'helicopter money' is used to refer  a wide range of different policies, including the 'permanent' monetization of budget deficits.It is expansionary fiscal policy financed by central bank money.

History of  Helicopter Money:

➜ 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 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'.

Modern concept of helicopter money.

➜ For the modern concept of helicopter money, we use balance sheets of the central bank, of the Treasury, and of the consolidated government, which combines the first two.

Basic structure of fiscal and monetary authority balance sheets.

India's Views on helicopter money :

India's central banker Raghuram Rajan are against helicopter money . As most of the indian economist claimed that the helicopter money would be ineffective because people would not spend the money. Many believe that Helicopter money would undermine trust in the currency ,which ultimately would lead to hyperinflation.

QUANTITATIVE EASING
Quantitative easing ( QE ) is a monetary policy used by central banks to stimulate the economy when standard monetary policy has become ineffective. A central bank implements quantitative easing by buying financial assets from commercial banks and other financial institutions, thus raising the prices of those financial assets and lowering their yield , while simultaneously increasing the money supply. This differs from the more usual policy of buying or selling short-term government bonds to keep interbank interest rates at a specified target value.