Videos | November 20, 2015

In 90 seconds – Could helicopter money kick start the eurozone?

With Eurozone growth still slow, should the European Central Bank (ECB) consider a radical option – like helicopter money?


In a November economic update video for eZonomics, ING senior economist Teunis Brosens explains that the ECB already employed quantitative easing and lowered interest rates below zero. "Of course it can intensify and lengthen these measures. But how effective these measures are is unclear," he says.

Flight of fancy?
Brosens asks if there are additional options to stimulate the eurozone. "Perhaps it’s time the ECB considers a radical new stimulus: helicopter money," he says. "As the name suggests, helicopter money is when money drops seemingly from the sky directly into people’s bank accounts."

Economist Milton Friedman floated the "helicopter drop" concept as a way to fight price deflation in his 1969 paper The Optimum Quantity of Money.

Brosens notes: "It immediately boosts purchasing power. It is probably a far more effective way to boost spending than measures already undertaken, such as purchasing assets." A positive 2014 analysis of helicopter money can be read here.

Irreversible policy
Brosens points out that helicopter money is also very risky. "Negative rates can be increased at the stroke of a pen. Purchased assets can be sold again.

“But helicopter money, once dropped, cannot be redeemed again by the central bank. It is irreversible policy. It also weakens the central bank’s balance sheet," he explains. This means the eurozone probably won’t see money falling out of the sky for some time to come, concludes Brosens.


 

EconomicsEuropeVideoGrowth

eZonomics team
.(JavaScript must be enabled to view this email address)

Have your say

Should banks incentivise you more to boost your savings?