¡Trata de arrancarlo, Christine!-Helicopter money: The illusion of a free lunch Claudio Borio, Piti Disyatat, Anna Zabai

¡Trata de arrancarlo, Christine!

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Por Juan Francisco Albert y David Tercero-Lucas

La pandemia provocada por el virus SARS-CoV-2, se ha cobrado más de medio millón de vidas, y ha provocado una de las mayores crisis económicas desde la Gran Depresión de los años 30. Para contrarrestar sus efectos, la Comisión Europea presentó hace unas semanas un plan de recuperación (aquí) bastante ambicioso, que contaría con la creación del llamado programa “Nueva Generación de la UE”, instrumento dotado con setecientos cincuenta mil millones de euros (entre subsidios y transferencias). Por otro lado, la respuesta de las autoridades monetarias, a diferencia de en la Gran Recesión de 2008, ha sido mucho más rápida. En BCE, por ejemplo, puso en marcha el llamado programa de compras de emergencia pandémica (PEPP), consistente en la compra de activos por valor de setecientos cincuenta mil millones de euros adicionales. La Reserva Federal, el Banco de Inglaterra y otros bancos centrales también han seguido en esta línea. No obstante, como esgrimió J. F. Jimeno en entradas previas (aquí), el margen de la política monetaria es escaso y el plan de la Comisión Europea no es suficiente habida cuenta de la magnitud de la crisis.
Con el objetivo y las expectativas de inflación situándose persistentemente por debajo del objetivo, unas políticas monetarias que pierden efectividad en un contexto de bajos tipos de interés (como explicó J. Fernández-Villaverde aquí o aquí), y unas elevadas ratios deuda pública/PIB en muchos de los países de la periferia europea que dejan poco margen para la política fiscal, cada vez más voces autorizadas abogan por la necesidad de una coordinación efectiva entre ambas (aquí, aquí, aquí, aquí o aquí).
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Estas políticas extraordinarias de coordinación, que dejan de lado el canal tradicional de los tipos de interés, pasarían por la creación perpetua de dinero por parte del banco central para financiar transferencias directas a los ciudadanos o a las autoridades fiscales, teniendo un impacto directo en el gasto. Como señala B. Bernanke (aquí), la gran ventaja de las propuestas de coordinación es que pueden proveer importantes estímulos a las economías sin incrementar las cargas fiscales. Asimismo, por un lado, el incremento en la oferta monetaria asegura que el gasto realizado por el sector público limitará el incremento del tipo de interés y el efecto expulsión de la política fiscal. Por otro lado, el aumento monetario facilitará que la transferencia sea efectiva y que no suponga cargas fiscales futuras, limitando la posible aparición de la equivalencia ricardiana A pesar de sus ventajas, este tipo de medidas no están exentas de retos y dificultades. Además de romper la conspicua separación entre la política monetaria y la fiscal, una inyección monetaria no reversible de la autoridad monetaria a los individuos o al gobierno, a tipo de interés cero, podría provocar la pérdida del control de la política monetaria (para más información, consúltese esta entrada de Borio et al.). Se adiciona a todo ello, consecuencia de lo anterior, el posible descontrol de la hoja de balance del banco central y sus efectos no deseados en los niveles precios, incluso en situaciones donde las expectativas de inflación sean prácticamente nulas. Por último y no menos importante, surgen los problemas de viabilidad legal en muchas jurisdicciones.
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Las formas de hacer volar el helicóptero monetario son muy diversas, existiendo distintos diseños con características y matices diferentes, aunque todos ellos implican la cooperación en menor o mayor grado de las autoridades fiscales y monetarias. Sin ánimo de ser muy exhaustivos, en esta entrada distinguimos dos modalidades.
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1) Transferencias monetarias universales. Este diseño es el más fiel a la idea original de M. Friedman y puede ser definido como transferencias monetarias directas de rentas del sector público al sector privado. Su peculiaridad radica en que estas son financiadas exclusivamente por el banco central y no suponen una carga fiscal para los respectivos gobiernos (aquí o aquí se realizan algunas propuestas para la Eurozona). Además, estas transferencias universales podrían diseñarse de forma automática a través de los estabilizadores automáticos (aquí) y/o basadas en reglas de política monetaria (aquí). Las transferencias directas a los ciudadanos tienen la ventaja que permiten que, una vez las autoridades monetarias tengan acceso a las cuentas bancarias de los individuos o puedan garantizar el pago de estas transferencias de cualquier modo alternativo, los bancos centrales podrían distribuir el dinero de nueva creación sin ningún tipo de intervención adicional por parte de las autoridades fiscales. Sin embargo, esta modalidad adolece de una serie de dificultades técnicas, de diseño y consideraciones éticas. ¿Deberían todos los ciudadanos recibir la misma cuantía con independencia de su nivel de ingresos, riqueza, edad, situación personal, etc.? ¿Cómo asegurarnos de que todos los ciudadanos reciben la transferencia en un mundo donde la inclusión financiera no es completa?
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-2) Monetización de déficits públicos. Este diseño difiere del anterior en que el nuevo dinero creado por el banco central ya no es distribuido directamente a los ciudadanos. En su lugar, es la autoridad fiscal el organismo encargado de acometer el gasto a partir de los nuevos fondos creados por el banco central. Nótese que además estos fondos podrían estar condicionados. Por ejemplo, para financiar un Green New Deal (aquí) o hacer frente a los gastos ocasionados por la pandemia del Covid-19 (aquí).
Aunque ambos diseños tienen diferentes implicaciones, desde una perspectiva económica ambas opciones de financiación serían irrelevantes dado que el cambio en el balance público consolidado (balance del gobierno más el del banco central) sería exactamente el mismo sin aumentar las cargas fiscales futuras. En el cuadro 1 se puede ver un resumen de algunas las propuestas de coordinación de políticas planteadas hasta la fecha.
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Cuadro 1. Propuestas de implementación del helicóptero monetario
Autores
Propuesta
Área monetaria
Explicación
Muellbauer (2014)
QE for people
Eurozona
Transferencia de 500 euros a todos los ciudadanos en edad adulta.
Galí (2020a)
Money-financed fiscal interventions
Eurozona
Financiación de los déficits públicos generados durante la crisis del coronavirus.
Bernanke (2016)
Money-Financed Fiscal Program
EE. UU.
Financiación de déficits públicos ante situaciones excepcionales.
Bartsch et al. (2019)
Monetary-financed fiscal facility
EE. UU.
Eurozona
Financiación de déficits públicos cuando los tipos de interés se encuentren en su mínimo efectivo.
Buiter (2014)
Helicopter money
Reino Unido
Eurozona
EE. UU.
Japón
Financiación temporal de los déficits públicos.
Lonergan (2016)
TLTRO for bank loans to each adult citizen
Eurozona
Transferencias monetarias a los ciudadanos a través del programa TLTRO
Friedman (1969)
Helicopter drop
EE. UU.
Transferencias de efectivo a los ciudadanos.
Turner (2015)
Monetary Finance
Japón
Monetización de la deuda japonesa.
Anderson (2015)
Green money
Reino Unido
Eurozona
EE. UU.
Financiación de déficits público para paliar los efectos del cambio climático.
Coppola (2019)
People’s quantitative easing
Reino Unido
Eurozona
EE.UU.
Transferencias monetarias a los ciudadanos durante las crisis económicas.
Jourdan (2020)
Helicopter money after Covid-19
Eurozona
Transferencia de 1000 euros a todos los ciudadanos en la fase de recuperación económica tras la crisis del coronavirus.
Sahm (2019)
Direct Stimulus Payments to
Individuals
EE.UU.
Transferencias monetarias los ciudadanos a través de los estabilizares automáticos.
Beckworth (2020)
Direct Cash Transfers based on rules
EE.UU.
Transferencias monetarias a los ciudadanos basado en reglas.
Fuente: Albert y Tercero-Lucas (2020)
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Debido a la magnitud sin precedentes de la crisis sanitaria, y tras valorar las ventajas e inconvenientes, en un reciente artículo de investigación (aquí), hemos planteado un plan de coordinación monetaria y fiscal para la Eurozona que podría proveer de los fondos necesarios para llevar a cabo la reconstrucción económica y que podría ser compatible con el marco legal de la UEM . No obstante, nuestra recomendación es que esta medida debería ponerse en práctica una única vez de forma excepcional ante la situación inédita en la que nos encontramos.
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La propuesta se llevaría a cabo en coordinación con el Banco Central Europeo (BCE) y el Banco Europeo de Inversiones (BEI) en tres fases: En primer lugar, el BCE decidiría de forma totalmente independiente la cuantía monetaria de nueva creación a emitir, siendo siempre consecuente con su objetivo de estabilidad de precios. En segundo lugar, el grupo del BEI emitiría bonos por la cantidad prefijada por el BCE durante un número determinado y preestablecido de ocasiones. Los bonos tendrían que ser adquiridos por el BCE en el mercado secundario, comprometiéndose este a mantenerlos en su balance de forma indefinida, si bien se podría condicionar este compromiso a la consecución de determinados objetivos. El grupo BEI distribuiría estos fondos entre el propio BEI y el Fondo Europeo de Inversiones (FEI). La cuantía obtenida iría destinada a acometer proyectos que permitan la recuperación de las economías europeas y en línea con los propios objetivos del BEI.
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Las ventajas de nuestra propuesta son diversas. Por un lado, la financiación de estos proyectos por parte del BCE supone un gasto real y directo en la economía, impulsando la demanda de unas economías deprimidas. Por otro lado, la monetización de estos bonos limita el crecimiento de los déficits públicos nacionales, la deuda pública, tensiones en los mercados y los riesgos de una potencial nueva crisis de deuda soberana. Por otra parte, esta propuesta de Helicóptero Monetario a través de la financiación de una expansión fiscal tiene una serie de ventajas con respecto a otras propuestas de transferencias universales exploradas anteriormente. Por un lado, se puede implementar de forma rápida y ágil dentro del actual marco legal y técnico de la UEM. Por otro lado, no necesita abordar los problemas derivados de la inclusión financiera o acceso de transferencias a toda la población y queda menos expuesto a problemas de carácter ético o distributivos resultantes de las transferencias universales. Adicionalmente, al ser el gasto acometido directamente por las autoridades fiscales, se limitaría el potencial riesgo de infectividad que podría ocurrir si los agentes decidieran ahorrar la cantidad recibida en lugar de acometer el gasto. El diseño de la propuesta permite fácilmente revertir esta política en el caso de que el banco central necesite ajustar la política monetaria en el futuro ante riesgos de inflación, ya fuere paralizando el programa de compra o vendiendo los bonos adquiridos si el programa ya hubiere finalizado. Aún si el BCE se compromete a no revertir esta medida y desea mantener estos bonos en el balance hasta su vencimiento, siempre que la proporción de tales en bonos en el balance total del Banco Central no sea muy elevada, el BCE podría ajustar la política monetaria si lo desea sin revocar su compromiso de mantener estos bonos emitidos por el BEI. Finalmente, la medida es única e irrepetible, utilizada solamente en una situación de excepcionalidad y gravedad.
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La pandemia, que parece que se ha mitigado en la UE, pero está arreciando en el resto del mundo, nos ha hecho navegar por mareas misteriosas. Las herramientas de política monetaria y fiscal dispensadas no son suficientes. Medidas excepcionales son necesarias, como la puesta en práctica de este particular tipo de helicóptero monetario. En un contexto de bajas expectativas de inflación, altos ratios deuda pública PIB y caídas de la actividad sin precedentes, quizá valga la pena correr el riesgo de tener que lidiar con una inflación no deseada en el futuro a incurrir en un elevado coste económico y humano por no disponer de las herramientas suficientes para intervenir. Veremos si Christine Lagarde puede arrancar el helicóptero.
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  • Muchas gracias a los autores !
    Demasiado optimismo quizá en lo que se refiere a la legalidad de lo q se propone?
    El análisis da por sentado que al ser el BEI el titular de los bonos la propuesta de que el BCE los mantenga en su balance de forma permanente es compatible con el Tratado y con las interpretaciones posteriores del Tribunal europeo de justicia en lo que se refiere a la prohibición de financiación monetaria.
    El BEI es propiedad de los gobiernos que son quienes aportan su capital.
    Responder
    • Muchas gracias por tu comentario, Inmaculada.
      El artículo 123 del TFUE, establece que, en ningún caso, el BCE puede adquirir deuda pública recién emitida de un Estado Miembro. Pero además, como bien has dejado entrever, esta prohibición no solo se aplica a la emisión de deuda en el mercado primario. No obstante, dado que la operación se va a realizar a través del grupo del BEI, que tiene plena autonomía y es completamente independiente, aunque los gobiernos aporten su capital, consideramos que la compra de deuda en el mercado secundario no debería contravenir el artículo 123 del TFUE, pero claro, esto es nuestra interpretación del tratado.
      https://nadaesgratis.es/admin/trata-de-arrancarlo-christine

      Helicopter money: The illusion of a free lunch

      Claudio Borio, Piti Disyatat, Anna Zabai 24 May 2016
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      Seven years on from the great financial crisis and despite central banks being seen by many as ‘the only game in town’, there has been a renewed push for monetary policy to experiment even further. One of the latest proposals is the revival of Milton Friedman’s ‘helicopter money’. But have all the implications of what many see as central banks’ ‘nuclear option’ been fully appreciated? This column argues that this is not the case. Realising the benefits that its proponents claim exist would require giving up on interest rate policy forever.
      Siete años después de la gran crisis financiera y a pesar de que muchos consideran a los bancos centrales como "el único juego de la ciudad", ha habido un renovado impulso para que la política monetaria experimente aún más. Una de las últimas propuestas es el resurgimiento del "dinero del helicóptero" de Milton Friedman. Pero, ¿se han apreciado plenamente todas las implicaciones de lo que muchos ven como la "opción nuclear" de los bancos centrales? Esta columna argumenta que no es así. Darse cuenta de los beneficios que sus proponentes afirman que existen requeriría renunciar a la política de tasas de interés para siempre.

      Related

      As central banks have been testing the limits of unconventional monetary policies, many observers have started to consider more radical options. One that has been gaining ground is that of ‘helicopter money’ (Friedman 1969) or, more soberly described, ‘overt money finance’ of government deficits (Turner 2015). Proponents see it as a sure-fire way to boost nominal spending by harnessing central banks’ most primitive power: their unique ability to create non-interest bearing money at will and at negligible costs. But does this really represent an additional tool for monetary policy or is it simply a reformulation of what central banks have done so far, albeit with greater fanfare?
    • A medida que los bancos centrales han ido poniendo a prueba los límites de las políticas monetarias no convencionales, muchos observadores han empezado a considerar opciones más radicales. Una que ha ido ganando terreno es la del "dinero de helicóptero" (Friedman 1969) o, más sobriamente descrita, la "financiación monetaria abierta" de los déficits gubernamentales (Turner 2015). Sus defensores lo ven como una forma segura de impulsar el gasto nominal aprovechando el poder más primitivo de los bancos centrales: su capacidad única de crear dinero sin intereses a voluntad y con costos insignificantes. Pero, ¿representa esto realmente una herramienta adicional para la política monetaria o es simplemente una reformulación de lo que los bancos centrales han hecho hasta ahora, aunque con mayor fanfarria?

    • Helicopter money: A neglected trade-off

      There is broad agreement that helicopter money is best regarded as an increase in economic agents’ nominal purchasing power in the form of a permanent addition to their money balances. Functionally, this is equivalent to an increase in the government deficit financed by a corresponding permanent increase in non-interest bearing central bank liabilities. Thus, on the financing side, the main difference with central bank asset purchases financed by issuing non-interest bearing bank reserves practised in the past, notably by the Bank of Japan during the early to mid-2000s, is that it is intended and perceived to be a permanent rather than a reversible operation (e.g. Reichlin et al. 2013). The central bank credibly commits never to withdraw the increase in reserves.
    • Existe un amplio acuerdo en que la mejor manera de considerar el dinero de los helicópteros es aumentar el poder adquisitivo nominal de los agentes económicos en forma de una adición permanente a sus balances monetarios. Funcionalmente, esto equivale a un aumento del déficit público financiado por el correspondiente aumento permanente de los pasivos del banco central que no devengan intereses. Así pues, por lo que respecta a la financiación, la principal diferencia con las compras de activos del banco central financiadas mediante la emisión de reservas bancarias no remuneradas practicadas en el pasado, en particular por el Banco del Japón a principios y mediados del decenio de 2000, es que se pretende y se percibe como una operación permanente más que reversible (por ejemplo, Reichlin y otros, 2013). El banco central se compromete de manera creíble a no retirar nunca el aumento de las reservas.

      Traducción realizada con la versión gratuita del traductor www.DeepL.com/Translator
      There is also general agreement that how the nominal expansion will be split between increases in the price level and in output depends on the broader features of the economy, notably how much prices adjust (‘nominal rigidities’). But, regardless of the split, in the models typically used, permanent monetary financing boosts nominal demand more than temporary monetary financing because it relaxes the (consolidated) government sector intertemporal budget constraint (Buiter 2014). Less debt finance means lower interest payments, forever. Even if the government issued debt, if this was purchased by the central bank which, in turn, issued non-interest bearing bank reserves, the consolidated government sector would incur a lower interest debt service burden. All else equal, this saving would boost nominal demand, as there would be no need to raise additional taxes.
      But this argument misses a crucial trade-off. Given the intrinsic features of how interest rates are determined in the market for bank reserves (bank deposits at the central bank), the central bank faces a catch-22. Either helicopter money results in interest rates permanently at zero – an unpalatable outcome to most, including those that advocate monetary financing1 – or else it is equivalent to either debt or to tax-financed government deficits, in which case it would not yield the desired additional expansionary effects.

      Just a little matter of monetary policy implementation…

      The reasoning is simple. Banks hold reserves for two main reasons: i) to meet any reserve requirement; and ii) to provide a cushion against uncertainty related to payments flows. The amount of reserves demanded in excess of the reserve requirement is then very interest-inelastic (i.e. in effect, vertical), dictated largely by structural characteristics of the payments system, which effectively do away with end-of-day settlement uncertainty.2 In monetary frameworks focused on setting targets for a short-term interest rate, what is critical for achieving these targets is how excess reserves – i.e. holdings over and above any minimum requirements – are remunerated. This is what determines the overnight rate.
      There are two types of remuneration schemes.
      Figure 1

      In one type, excess reserves are remunerated at a rate below the policy rate (Figure 1, left-hand panel) – the most common scheme. In this case, achieving the desired interest rate target requires that the central bank fine-tunes the amount of reserves to meet the interest-insensitive demand (R̄), which is typically a small, frictional amount. Failure to do so would generate significant volatility in the overnight interest rate. Any excess would drive it to the floor set by the remuneration on excess reserves (zero or the rate on any standing deposit facility), as banks seek to get rid of unwanted balances by lending in the overnight interbank market. Any shortfall would lead to potential settlement difficulties, driving the rate to unacceptably high levels or to the ceiling set by end-of-day lending facilities. The Reserve Bank of Australia, for example, operates such a scheme, with no reserve requirement. Note the small and stable amount of excess reserves, spikes aside (right-hand panel of Figure 1). The central bank then sets the rate wherever it wishes, by signalling and/or operating at that rate.
      In the alternative scheme, the central bank remunerates excess reserves at the policy rate – typically the deposit facility rate (Figure 2, left-hand panel). It then supplies more balances than necessary for settlement purposes so as to operate on the horizontal portion of the demand for bank reserves. This sets banks’ opportunity cost of holding reserves to zero, as they become a very close substitute for other short-term liquid assets. The central bank can then supply as much as it likes at that rate. The Reserve Bank of New Zealand represents a good example, having moved in 2006 to such a framework (right-hand panel of Figure 2), after having hitherto operated as in scheme 1. Many major central banks, including the Federal Reserve and the Bank of England, have been operating under such a scheme post-crisis.
      Figure 2
      In either case, interest rates can be set quite independently of the amount of reserves in the system. A given quantity of reserves is consistent with many different levels of interest rates; conversely, the same interest rate obtains with different amounts of reserves. The ‘decoupling’ of interest rates from reserves is obviously well known to central banks but, surprisingly, it has not yet found its way into textbooks and economic thinking more generally. It is discussed in detail in Borio and Disyatat 2010, Disyatat 2008, Borio 1997 and Keister et al. 2008.

      …that cannot just be ignored

      This seemingly innocuous technical detail has major implications. The central bank can of course implement a permanent injection of non-interest bearing reserves and accept a zero interest rate forever (scheme 1). This produces the envisaged budgetary savings but at the cost of giving up completely on monetary policy. If the central bank wishes to avoid that outcome, it has only two options.3 It can pay interest on reserves at the policy rate (scheme 2), but then this is equivalent to debt-financing from the perspective of the consolidated public sector balance sheet – there are no interest savings.4 Or else the central bank can impose a non-interest bearing compulsory reserve requirement equivalent to the amount of the monetary expansion (so that excess reserves remain unchanged – scheme 1), but then this is equivalent to tax-financing – someone in the private sector must bear the cost.5 Either way, the additional boost to demand relative to temporary monetary financing will not materialise.
      The models fail to bring this crucial point out because they omit a realistic determination of the nominal interest rate. Typically, they neglect bank reserves altogether on the presumption that there exists a traditional money demand function that relates interest rates to the money supply (cash), the price level and income. For a given level of the interest rate, this relationship dictates that an exogenous rise in the money supply will lead to a proportionate increase in nominal income (with flexible prices, just in the price level). In fact, such models often imply that monetary financing will increase nominal interest rates (Galí 2014).
      As we have made clear, in the market for bank reserves where interest rates are actually determined, there is no such thing as a well-behaved downward-sloping money demand function. Unless interest is paid on excess reserves, the central bank must supply the specific amount of reserves banks demand – no more and no less. Moreover, cash does not influence the setting of the interest rate. In real life, central banks meet entirely passively the public’s demand for cash (e.g. Grenville 2013). If they did not, either the amount in excess of desired balances would be converted into bank deposits and then switched by banks into excess reserves, or it would fall short of the demand, frustrating the public, which would presumably turn to alternative means of payment.

      Beware of central banks bearing gifts

      Helicopter money, as typically envisioned, comes with a heavy price: it means giving up on monetary policy forever. Once the models are complemented with a realistic interest-rate setting mechanism, a money-financed fiscal programme becomes more expansionary than a debt-financed programme only if the central banks credibly commits to setting policy at zero once and for all. Short of this, these models would suggest a rather limited additional expansionary impact of monetary financing.
      If something looks too good to be true, it is. There is no such thing as a free lunch.
      Authors’
    • note: The views expressed are those of the authors and do not necessarily represent those of the Bank for International Settlements or the Bank of Thailand​.

    •  El dinero de los helicópteros, como típicamente se prevé, tiene un alto precio: significa renunciar a la política monetaria para siempre. Una vez que los modelos se complementan con un mecanismo realista de fijación de tipos de interés, un programa fiscal financiado con dinero se vuelve más expansivo que un programa financiado con deuda sólo si los bancos centrales se comprometen de forma creíble a fijar la política en cero de una vez por todas. Sin embargo, estos modelos sugerirían un efecto expansionista adicional bastante limitado de la financiación monetaria.
      Si algo parece demasiado bueno para ser verdad, lo es. No hay tal cosa como un almuerzo gratis.

      References

      Borio, C (1997), “The implementation of monetary policy in industrial countries: a survey”, BIS Economic Papers, no 47.
      Borio, C and P Disyatat (2010), “Unconventional monetary policies: an appraisal”, The Manchester School, 78(s1), pp 53–89, September. Also available as BIS Working Papers, no 292, November 2009.
      Bernanke, B (2016), “What tools does the Fed have left? Part 3: Helicopter money”, Ben Bernanke’s Blog, Brookings Institute, April 11.
      Buiter, W (2014), “The simple analytics of helicopter money: Why it works – always”; Economics, vol 8, 2014-28, August.
      Derviş, K (2016), “Time for helicopter money?”, Project Syndicate, 3 March.
      Disyatat, P (2008), “Monetary policy implementation: misconceptions and their consequences”, BIS Working Papers, no 269.
      Friedman, M (1969), “The optimum quantity of money”, in Milton Friedman, The Optimum Quantity of Money and Other Essays, Chapter 1. Adline Publishing Company: Chicago.
      Galí, J (2014), “The effects of a money-financed fiscal stimulus”, CEPR Discussion Paper 10165.
      Grenville, S (2013), “Helicopter money”, VoxEU, 24 February.
      Keister, T, A Martin and J McAndrews (2008), "Divorcing money from monetary policy," Economic Policy Review, Federal Reserve Bank of New York, September, pp 41-56.
      Reichlin, L, A Turner and M Woodford (2013), “Helicopter money as a policy option”, VoxEU, 20 May.
      Turner, A (2015), “The Case for Monetary Finance – An Essentially Political Issue”, paper presented at Sixteenth Jacques Polak Annual Research Conference, International Monetary Fund.

      Endnotes

      [1] Turner (2015) sees overt monetary financing as a way of avoiding the unwelcome consequences of low interest rates, such as excessive risk-taking and increased debt. Derviş (2016) also advocates helicopter money partly as a way to avoid the negative consequences of maintaining low interest rates for too long.
      [2] For simplicity, here we avoid the complications that arise when reserve requirements have averaging provisions, which do not really affect our argument. For the details, see Borio (1997).
      [3] Conceptually, it is possible that the demand for reserves grows over time until at some point excess reserves are eliminated. In practice, this would take an exceedingly long time. The most probable case is when banks are subject to a reserve requirement fixed as a proportion of outstanding deposits. As the latter grow, demand for reserves to fulfil the requirement increases. But this is a very gradual process.
      [4] Of course, there is a maturity dimension too. This would be equivalent to financing at the overnight rate, as opposed to a longer-term rate.
      [5] More elaborate schemes involving remunerating reserves but recouping the cost through a separate levy on banks (Bernanke 2016) amount to the same thing: tax-financed deficit spending.
      1. https://voxeu.org/article/helicopter-money-illusion-free-lunch

    •  

      Helicopter money

      Stephen Grenville 24 February 2013

      What would the overt monetary financing of fiscal deficits involve? This column explains the differences between “printing money”, quantitative easing, and overt monetary finance. Lord Turner’s proposed “helicopter drop” raises issues for banks’ balance sheets and central bank independence.

      Related

      In the current debate about monetary policy, two terms are bandied about to the detriment of clarity: ‘printing money’ and ‘helicopter money’ (Sinn 2011).

      Printing money

      To describe quantitative easing as ‘printing money’ is a misnomer. The amount of currency held by the public is determined by demand. When the Bank of England carries out quantitative easing, it pays for the bonds by crediting the seller’s bank. There is an increase in base money in the form of bank deposits at the central bank, but the demand for currency hasn’t changed. There is no need to ‘print money’.

      An individual bank with excess holdings of deposits at the Bank of England might try to reduce these by creating new credit or buying other assets. But whatever individual banks do, the total amount of base money remains unchanged.

      Helicopter money

      The image of the central-bank helicopter dropping currency onto the eager public below is even more misleading. Governments can do this, giving away either cash or, more realistically, cheques (the Australian government sent cheques to most taxpayers in 2009, dubbed the ‘cash splash’). But this is fiscal policy, not monetary policy. Central banks have no mandate to give money away (they can only exchange one asset for another, as they do in quantitative easing). Decisions like this are backed by the usual budget-approval process. Thus it is a government helicopter that does the drop, and it is called fiscal policy.

      As usual, there are disagreements about how effective this would be in stimulating demand. Unless there is strong crowding-out or Ricardian equivalence – very unlikely when there is spare economic capacity and interest rates are held down by monetary policy – or, indeed, this deficit can’t be funded – clearly not currently applicable, with bond yields historically low – then this is very likely to boost demand. The recipient of the largess might save some, but will spend most. Thus those who explore this policy option are doubtless correct in arguing that fiscal expansion would provide a more assured boost to demand than would quantitative easing.

       

      Funding the deficit

      If there is a concern that normal funding through bond issuance might push up interest rates or that financial markets might baulk at the funding requirement, the central bank could fund the deficit, taking bonds into its balance sheet and crediting the government’s account. This is, to all intents and purposes, a quantitative easing operation, although it might be initiated by the government.

      Who is bearing the cost of funding the budget deficit? When the government draws down its account at the central bank to write cheques to the public (the ‘cash splash’), these cheques are paid into banks. Even in the fantasy world of a helicopter currency drop, this ends up being deposited with banks, as the public already has all the currency it wants to hold. The banking system has more deposits from the public on its liability side, and more deposits with the central bank on the assets side. The deficit has been funded by forcing the banks to hold more base money.

      Thus this approach doesn’t avoid an increase in official debt (the central bank’s increased liability to the banks has to be counted). Similarly, if the central bank pays a market interest rate on these deposits (which most central banks currently do), then it’s not even saving any funding cost. If the central bank ceases paying a market return on these deposits, that would lower the interest cost of funding the deficit, but it would be a de facto tax on banks.

      There are subtle differences between this deficit-funding operation and normal quantitative easing. First, central banks decide when to do quantitative easing and how much, while an overt monetary finance would be a joint decision with the government. This raises issues of central-bank independence: the ability to say ‘no’ to government requests for funding is an important discipline on budget expenditures. There may also be a different understanding in financial markets about the unwinding of this operation. The clear understanding is that quantitative easing will be unwound at some stage, while with overt monetary finance this might be unclear (although the distortionary impact of the banking system’s forced holding of substantial excess reserves doesn’t seem to be a satisfactory long-term arrangement).

      Lord Turner (2013) is right in criticising the inflation alarmists, who carry outdated views on the relationship between money and prices. Similarly, those with a deficit fetish who argue that stimulus will be futile and harmful should be required to make their case within the current context of spare capacity. Lord Turner’s cautious case for overt monetary finance needs to be balanced by considering the distortions that quantitative easing (and potentially overt monetary finance) has on bank balance sheets, as well as the damage to central-bank independence.

      References

      Sinn, Hans-Werner (2011, “The threat to use the printing press”, VoxEU.org, 18 November.

      Turner, Adair (2013), “Debt, Money and Mephistopheles: How do we get out of this mess?”, speech, Cass Business School.

    • Helicopter money: Views of leading economists

      Richard Baldwin 13 April 2016

      Helicopter money is frequently in the headlines but frequently misunderstood. This column reviews the VoxEU columns that have – since 2010 – provided research-based policy analysis of this ‘beyond unconventional’ policy. 

      Related

      The media seems awash with talk about rotary flight – the ‘helicopter money’ or ‘helicopter drop‘ of Milton Friedman and Ben Bernanke fame. This is understandable.

      Recessionary and deflationary tendencies are increasingly baked into expectations, making a Japan-like scenario more likely. The negative trends are proving increasingly impervious to conventional and unconventional monetary policy. Fiscal policy could help, but it appears to be tied up in political conundrums, as are many pro-growth structural policies.

      As this trend is fostering deep and grievous social and political unrest, minds have been turning to increasingly radical thoughts – including thoughts about what sort of economic policy could reverse the dangerous drift. The leading contender in this ‘radical thoughts’ category is helicopter money; it is a concept that seems to be moving, slowly, from crazy to inevitable. But this begs a series of questions.

      Leading economists on ‘helicopter money’

      What does helicopter money really mean? Is it as crazy as it sounds? Could it be undone? Practically speaking, how would it be implemented? VoxEU writers have been providing research-based policy analysis and commentary on the helicopter options for years.

      Here is a full list of the relevant VoxEU.org columns:

      Helicopter money: The illusion of a free lunch

      Claudio Borio, Piti Disyatat, Anna Zabai 24 May 2016

      Seven years on from the great financial crisis and despite central banks being seen by many as ‘the only game in town’, there has been a renewed push for monetary policy to experiment even further. One of the latest proposals is the revival of Milton Friedman’s ‘helicopter money’. But have all the implications of what many see as central banks’ ‘nuclear option’ been fully appreciated? This column argues that this is not the case. Realising the benefits that its proponents claim exist would require giving up on interest rate policy forever.

      A helicopter drop for the US Treasury

      Ricardo Caballero, 30 August 2010

      The US may be near a liquidity trap. This column argues that the ineffectiveness of monetary policy can be turned on its head by using money creation to finance fiscal policy stimulus – such as a large but temporary cut in sales taxes. To avoid future problems, the Treasury could commit to transfer resources back to the Fed when the economy is back to full employment. This would be a helicopter drop with a drainage contingency.

      Helicopter money as a policy option

      Lucrezia Reichlin, Adair Turner, Michael Woodford, 20 May 2013

      With persistently weak economic conditions becoming the norm in Europe, economists are considering increasingly unconventional policy options. One tool that has yet to be taken out of storage is ‘helicopter money’, i.e. the overt monetary financing of government deficits. This column recounts a policy debate on helicopter money that was held at LBS in April 2013 among three of the world’s leading monetary economists.

      Secular stagnation: The time for one-armed policy is over

      Willem Buiter, Ebrahim Rahbari, Joe Seydl, 05 June 2015

      Stagnation is gripping several of the world’s largest economies and many view this as secular, not transient. This column argues that many economies need both demand-side stimulus and supply-side reform to close the output gap and restore potential-output growth. A combined monetary-fiscal stimulus – i.e. helicopter money – is needed to close the output gap, and this should be accompanied with extensive debt restructuring, policies to halt rising inequality, and additional public infrastructure investment.

      Combatting Eurozone deflation: QE for the people

      John Muellbauer, 23 December 2014

      Eurozone deflation is likely to become reality when the annual inflation figure for 2014 is announced in January. This column argues that the ECB should develop a strategy that works in the Eurozone’s unique financial setting, instead of following the Fed’s lead. The author proposes that the ECB should pursue ‘quantitative easing for the people’, such as sending each adult citizen a €500 cheque.

      Fiscal stimulus via ‘helicopter tax credits’

      Biagio Bossone, Marco Cattaneo, 04 January 2016

      ‘Helicopter tax credits’ have been proposed as a means of injecting new purchasing power into the economies of Eurozone Crisis countries. This column outlines one such system for Italy. The Tax Credit Certificate system is projected to accelerate Italy’s recovery over the next four years, and will likely be sustainable. It also provides a tool to avoid the breakup of the Eurosystem and its potentially disruptive consequences.

      Eurozone recovery: there are no shortcuts

      Roberto Perotti, 13 September 2014

      There is a growing consensus that austerity is contributing to the Eurozone’s macroeconomic malaise, but also that spending cuts are needed in the long run to achieve fiscal sustainability. Some commentators have advocated a temporary tax cut financed by unsterilised ECB purchases of long-term public debt, accompanied by a commitment to future spending cuts. This column argues that such commitments are simply not credible – especially given the moral hazard problem created by central bank monetisation of debts.

      Helicopter money: Today’s best policy option

      Biagio Bossone, Thomas Fazi, Richard Wood, 01 October 2014

      High debt and deflation have afflicted Japan, the Eurozone, and the US. However, the monetary and fiscal policies implemented so far have been disappointing. This column discusses the importance of helicopter money in the form of overt monetary financing in addressing these problems. Overt money financing is the policy with the highest impact in raising demand and output without increasing public debt and interest rates.

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