Helicopter money
Also called: Helicopter drop · Topic: Banking, Credit Creation and Monetary Policy · NCERT: Beyond NCERT
Meaning
Helicopter money is an idea described by Milton Friedman in 1969. The central bank creates new money and gives it directly to the public, or uses it to permanently finance government spending. The aim is to boost demand when normal tools have stopped working. The key feature is that it is permanent: the money is never taken back. It is an unconventional monetary policy.
Example
Imagine a central bank crediting a fixed amount of newly created money into every citizen's bank account, with no plan ever to withdraw it. People spend part of it, and demand rises. Friedman pictured this as money dropped from a helicopter.
Don't confuse with
- Quantitative easing (QE): QE buys bonds in exchange for new money, and the purchases can later be reversed through quantitative tightening. Helicopter money gives money away permanently and is never reversed.
Related concepts
- Unconventional monetary policy
- Quantitative easing
- Quantitative tightening
- Negative interest rate policy
- Yield curve control
- Operation Twist
- Taper tantrum