Helicopter Money - Definition, History, Examples, Benefits, Issues, Criticism And More

Helicopter Money or Helicopter Drop is the economic term that refers to the infusion of liquidity as a monetary stimulus that injects cash into an economy as if thrown out of a helicopter. Several states have attempted the helicopter money concept and have received either a mixed reception or devastating results. During the Great Depression between 1992 and 2008, the notion was adopted in a few nations. 

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This article clarifies everything you need to know about helicopter money UPSC. You will learn about the origins, benefits, and causes of a cycle that led to the formation and its notion, as well as its repercussions on the Indian economy. This is one of the most important topics for the UPSC IAS exam. It is a part of the General Studies paper-3 syllabus of UPSC.

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What is Helicopter Money?

Helicopter money is a proposed unconventional monetary policy tool. It involves directly distributing money to the public to stimulate economic growth. It is typically considered as a last resort measure when conventional monetary policy tools fail.

History of Helicopter Money

In 1969, an American economist Milton Friedman coined the term “Helicopter-Money”.

• During the 2000s, the notion was revitalised and became well-known.
• In his famous speech in November 2002, Federal Reserve Bank Governor Ben Bernanke reintroduced the helicopter drop of money as an anti-deflationary tactic.
• Following the global financial crisis in 2008, numerous economists pursued helicopter-money alternatives such as quantitative easing and debt redemption.

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Helicopter Money Examples 

• In response to the global financial crisis in 2008. The United States implemented a form of helicopter money through the Economic Stimulus Act, providing direct cash payments to eligible taxpayers.
• During the COVID-19 pandemic, many countries, including the United States, Canada, and Australia, distributed stimulus checks or economic relief payments to individuals and businesses as a form of helicopter money.
• In 2016, the Bank of Japan considered implementing helicopter money by providing direct transfers to citizens to stimulate economic growth.
• The concept of universal basic income, where all citizens receive a regular income from the government, can be seen as a form of helicopter money.
• Some proponents of modern monetary theory suggest that central banks should directly finance government spending, effectively creating helicopter money to stimulate economic activity.
• The concept of helicopter money is often discussed as a potential tool for policymakers to combat deflationary pressures and stimulate aggregate demand in a struggling economy.

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Advantages and Disadvantages of Helicopter Money

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Criticism of Helicopter Money

Some of the key criticisms of helicopter money include: 

• One of the biggest concerns about helicopter money is that it could lead to inflation. If the government prints new money and distributes it to the public, the increased money supply could drive up prices for goods and services.
• Some critics also argue that helicopter money could create a moral hazard. This is by encouraging people to take on more debt and risk, knowing that the government will bail them out if they get into trouble.
• Helicopter money could also exacerbate inequality. This would benefit those who have more assets and income. Those with more assets and income would be able to save more of the money they receive from the government. Those with less assets and income would be more likely to spend it.
• Helicopter money could also lead to a loss of confidence in the government and the currency. If people believe that the government is willing to print money to solve its problems, they may be less likely to invest in the economy.

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Difference between Helicopter Money and Quantitative Easing

Helicopter money is frequently confused with quantitative easing. However, both are monetary policy instruments that increase the money supply and have distinct effects on the central bank's balance sheet.

• Under the Helicopter-Money Policy, the country’s reserve bank (Reserve Bank of India (RBI) in the case of India) manufactures massive quantities of currency notes. It distributes them to the government and then to the people.
• The central government does not repay the money granted under the Helicopter Money policy.
• The central government must repay the money supplied by the country’s central bank under Quantitative Easing.
• The central bank builds reserves by purchasing government securities from commercial banks and other financial institutions as part of quantitative easing.
• On the other hand, it entails distributing money to the general population without increasing the central bank’s assets.
• This money generally expands the money supply by delivering cash to the general public, whereas quantitative easing expands the money supply by purchasing government bonds.

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Helicopter Money in India

The notion of this has been adopted in a number of countries to help restore their economies.

• In economies like India, which are experiencing a downturn, there is always a question of whether it will benefit from certain measures.
• When the Covid-19 pandemic hit in 2020, Telangana became the first state to propose its incorporation into the Indian economy. However, the matter was still being reviewed by the Monetary Policy Committee.
• To provide further clarity on the response, implementing such measures would contribute to the growth of the Indian economy.
• It would facilitate the infusion of liquidity into the economy and stimulate economic activity nationwide.
• With an increase in people's disposable income, there would also be a rise in market demand.

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Conclusion

The concept of this monetary approach emerged in the 1960s. It was employed by several nations like Japan, Venezuela, and Zimbabwe to revive their economies during the Great Depression. The effectiveness of this approach remains a subject of debate. Reflecting on historical instances, its impact varied, yielding partial benefits in some countries and significant failures in others. The idea gained traction due to economic downturns, offering potential advantages and carrying inherent drawbacks. When considering implementing such a program, the government should exercise caution, as its success could bring economic benefits, but failure could have destructive consequences for the country's economy.

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Helicopter Money – UPSC Notes for Economy: Download PDF here!

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