What is Helicopter Money and when and why does government use it?

Today, due to Coronavirus, the call of the global recession has started in the whole world. The biggest reason for this is a large number of cuts in jobs. Due to this, the purchasing power of the people has decreased, due to which the demand is falling in every sector of the economy and as a result, the economies are seen getting stuck in the recession. Many financial measures are taken by the government to remove the economy from the state of this recession, which is called fiscal and monetary measures. One of these monetary measures is Helicopter Money by which the economy is prevented from getting caught in the recession.

 

What is Helicopter Money?

 

The term Helicopter Money was first coined by economist Milton Freedman in 1969. This means that the Reserve Bank will print the money and give it directly to the government so that it can distribute it to the public so that people can meet their basic needs with this money.

 

It is symbolic like pouring money from a helicopter because the public did not expect this unexpected money and has come directly to their account as if it had fallen from the sky. Helicopter Money is used with the intention of getting a struggling economy out of a deep recession or can also be used to avert a recession.

 

Taking steps in this direction, some state governments and the central government have sent money to the accounts of the people. Telangana CM KC Rao said that helicopter money can help states to come out of the tough economic front. He said that the Reserve Bank should spend at least 5% of the country's GDP through Quantitative Easing (QE) so that the purchasing power remains in the hands of the people. The Uttar Pradesh government on April 10 transferred Rs 1,000 each to the bank accounts of 4,81,755 daily labourers, including street vendors and rickshaws. Similar financial assistance of Rs 5000 thousand has been given by Delhi government to every auto, taxi and e-rickshaw drivers of the state. About 8 crore beneficiaries of the Ujjwala scheme will be sent Rs 5,000 crore to their bank accounts to buy LPG cylinders for three months. These examples show that the government has spent money on people.

 

Is Helicopter money the same as Quantitative Easing?

 

Under chopper money, the country's central bank first prints note on a large scale and give it to the government and the government further spends it on the people. The money given under helicopter money does not have to be refunded to the central bank by the government. Whereas under quantitative easing, the central bank prints the notes and gives them to the government, but the central bank buys government bonds only when it gives money to the government. Later, the central government has to buy back these bonds and return the money to the Reserve Bank.

 

Is Helicopter Money Good for Economy?

 

Due to chopper money, the supply of rupee increases in the country's economy, due to which inflation increases, that is, the value of the country's currency is reduced. If the government leaves about Rs 11 lakh crore in the economy to deal with COVID 19, then a huge amount of money will be supplied in the market which will further create a crisis for the poor for whom this money can be put in the market today. Used to be. Therefore, Helicopter Money drop is a double-edged sword and the government needs to use it carefully.

 

Examples of helicopter money

 

If a country's economy grows at a slow pace or does not develop at all, it can consider helicopter money. In 2016, for example, Japan considered using helicopter money to accelerate its country's slow growth. Financial markets showed decision-related, as participants feared hyperinflation and currency devaluation. Therefore, the Bank of Japan (BoJ) opted for an alternative way to increase monetary supply. This included different types of partnerships and purchases such as government bonds, infrastructure design and payments to low-income people.

 

Benefits of helicopter money

 

It does not rely on increased borrowings to fuel the economy to keep the engine running, meaning it does not generate much debt. It increases spending and economic growth more effectively than quantitative easing because it increases aggregate demand.

 

Issues with helicopter money

 

Helicopter money does not include repayment liability, so many experts argue that this is not a possible solution to revive the economy. This could increase inflation. It can devalue its currency in the foreign exchange market.