HELICOPTER MONEY?

Upon hearing the term “Helicopter Money”, one might start fantasizing of an airplane/ helicopter raining cash and/or silver coins. If you are one of those then trust me you are not alone. Even I had a similar notion. So, we will dive into the sea of this very unconventional concept and explore what exactly it is after having a background that led to the birth of this concept.

During this unprecedented time of pandemic-COVID-19, nations across the globe are witnessing alarming downfall in the economy. It has been anticipated even by the new Managing Director of the International Monetary Fund, Kristalina Georgieva that the world GDP could plummet to about 3% which is still an optimistic projection. It has been feared that this recession will be worse than the GREAT DEPRESSION of 1930’s that found its origin in the United States of America.

Currently the world is experiencing the following symptoms of economic distraught-

• Unemployment– Companies have started laying off their employees or have given an indication of doing so in the near future if situation does not improve.
• Negative growth– Because of lockdown the end of which seems to be non-obvious under current circumstances, there has been a halt on the manufacturing and production activities.
• Low demand– Lesser income generation opportunities, pay cuts, layoffs have left the people’s pocket empty eventually leading to lesser demand for products and services.
• Low prices (Deflation)– Following the directly proportional relationship between price and demand, there will eventually be some decrease in price for the products and services to scale up the falling demand. (Commodities like Gold is an exception which we will be taking up further in our next encounter)

Taking cognizance of above indicators MILTON FRIEDMAN coined the term- Helicopter Money. It is an unconventional economic revival strategy that aims to spur up inflation to catalyze the economic progress. It is also referred to as Helicopter Drop. It gained a notable popularity when Bern Bernake made a reference to it in 2002 while being a Federal Reserve Governor.

HOW HELICOPTER MONEY WORKS– Under this concept extra cash can be printed and circulated in the public so that they may spend the money received and keep the demand of product & services high. Thus, it can be accrued a certain amount of inflation is also a healthy indicator for a growing and competitive economy.

Money can be distributed in the following form-

• RBI prints money and gives it to the government, which the government need not return.
• Direct transfer of money in to the account of citizens or distribution of cash via regulated mechanism.
• Cutting down taxes by significant amount.
• Government spending to provide citizens with essential supplies.

The main motive of infusing helicopter money is to keep the economy moving such that the money distributed comes under circulation via purchase of goods and services.

Recently the Chief Minister of Telangana, Shri K Chandrashekar Rao has requested RBI to release Helicopter Money in the wake of this adverse pandemic situation.

However, with each option comes risk as well. Some of the notable risks are-

• It must be noted Zimbabwe is an apt example for such a mismanaged event of distributing money vis helicopter. It printed cash and distributed it amongst the citizens leading to hyper-inflation such that they had to print denominations of even 100 trillion Zimbabwe dollars in 2008 and the price of currency was increasing twice daily.
• People may tend to save the received money which will kill the very purpose of catalyzing the economic activity via business transactions.
• Also, if the amount of cash in the system increases for free, then obviously there will be sky rocketing rise in demand of products and services resulting into increase in the cost of the commodity and hence gradually leading to hyper-inflation.

This why Helicopter Money is the least thought of option even in the most adverse times.

Image Source-LinkedIn (Joshua Brown)