What is Helicopter Money?

Helicopter Money is a phrase coined by economist Milton Friedman that signified a helicopter dropping currency from the sky. It refers to an unconventional monetary policy tool that means printing large sums of money and distributing it to the public to simulate a flagging economy. It is considered a way to jumpstart the economy during deflationary periods.

Developed markets, mainly Japan and those in Europe are struggling to stimulate their economies with loose monetary policies and even negative interest rates. As a result, global financial markets are now betting that central banks, starting with Japan, will resort to this concept to boost demand and inflation.

Deflation, or falling prices, can seriously damage an economy. This is because when prices are falling, consumers and businesses become reluctant to spend as they feel the item will be cheaper the next day. Japan and the Eurozone are experiencing this and therefore, the Bank of Japan and the European Central Bank have been resorting to different tactics to try and reverse this phenomenon.

This can have disastrous implications of its own. Things can spiral out of control when a government finances itself in such a way. This is because when there is inflation, there is a tendency to increase interest rates and in turn, borrowing costs. So, money loses its value and commerce can come to a standstill.

Though quantitative easing does consist of central banks using created money to buy government bonds, not everyone agrees that it is Helicopter Money. Though, it does mean printing money to fund government deficits. With quantitative easing, the central banks buy assets that the government has to pay back. Yet, some analysts equate Helicopter Money to the policies of countries like Japan dealing with a deflationary situation.