Kazuhiro Nogi/AFP/Getty Images

The Unavoidable Costs of Helicopter Money

The long-running debate about the advisability of so-called helicopter money has changed shape, as new ideas emerge about the form it could take – and questions arise about whether it is already being dropped on some economies. What hasn't changed is that it is a very bad idea.

MUNICH – The long-running debate about the advisability of so-called helicopter money has changed shape, as new ideas emerge about the form it could take – and questions arise about whether it is already being dropped on some economies. What hasn’t changed is that embracing helicopter money would be a very bad idea.

According to the conventional view, helicopter money is newly printed cash that the central bank doles out, without booking corresponding assets or claims on its balance sheet. It can come in the form of cash transfers to the public or as the monetization of government debt; in both cases, it is a permanent loss for the central bank.

In practice, helicopter money can look a lot like quantitative easing – purchases by central banks of government securities on secondary markets to inject liquidity into the banking system. The helicopter-money version would be the purchase of zero-interest-rate government bonds that will not be repaid, either because they are perpetual bonds or because they are rolled over every time they mature.

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