Frankfurt / AFP
It’s a concept that conjures up images of European Central Bank (ECB) chief Mario Draghi donning his flying suit, starting his helicopter and flying out over the eurozone to throw money to the crowds below.
In the question-and-answer session of his traditional post-meeting press conference last week, Draghi was asked whether â€œhelicopter moneyâ€ was part of the ECB’s toolbox in its long – and so far largely ineffectual â€” fight against the spectre of deflation in the euro area. But the Italian central banker replied that the ECB had not really thought or talked about helicopter money” at this stage.
“We haven’t really studied (it) yet,” he said, but added, “It’s a very interesting concept that is now being discussed by academic economists and in various environments.”
â€œHelicopter moneyâ€ was originally posited by US economist Milton Friedman in 1969 when he suggested in a thought game that a helicopter fly over a community and drop bills from the sky in the hope that by putting more money directly into consumers’ pockets, they would scurry to the shops to spend their windfalls.
The ensuing surge in demand would revitalise the economy and avert the threat of deflation by persuading retailers to raise their prices, Friedman said.
It is a concept that has never been tried out in real life by any major central bank. But with growing concern that quantitative easing and zero or even negative interest rates have lost their power to kickstart the economy, it is clear that Draghi, however terse his remarks were, is not dismissing the idea entirely out of hand.
It would clearly involve complexities, both accounting-wise and legal-wise, for our view,” he said.
, but conceded it could “mean many different things, and so we have to see.”
“Helicopter money is currently the object of intense reflection in academic and central bank circles,” said Marcel Fratzcher, head of the German DIW economic think tank.
But “it would really be an instrument of last resort, if nothing else worked,” he said.
Over the past two years, the ECB has pulled out all the stops to prevent the single currency area from slipping into deflation â€” a dangerous downward spiral of falling prices.