Global Trends and Politics

Will it soon be raining money?

Anyone who thinks that quantitative easing and negative interest rates constitute the entire arsenal of unconventional weapons available to central banks will be left amazed by an idea that tops them all: “helicopter money”.


The term was coined in the 1960s by economist Milton Friedman, drawing on the image of helicopters airdropping freshly printed bills over cities and villages. In other words, the fight against low inflation rates could, in extremis, involve distributing money directly to the population without going through the banks, in order to stimulate consumption, economic growth and inflation.

In practice, a central bank could, for example, lend the government money and immediately write off the debt. The state then spends the money directly or distributes it to its citizens in the form of a tax rebate.

For decades this concept was no more than a footnote of economic theory. Today, however, the idea seems to be gaining ground. As far back as 1999, Ben Bernanke, later Chairman of the US Federal Reserve, had suggested the use of helicopter money as a potential solution for deflation risks in Japan. Lord Adair Turner, former Chairman of the UK’s Financial Services Authority, sees helicopter money as a potential way out of the current sovereign debt crisis. But since Mario Draghi called it “a very interesting concept”, albeit only in academic terms, it seems everyone is talking about helicopter money.

Why deal with crises when you can simply turn the taps on?

The repercussions would be dire. With quantitative easing, although the ECB also prints money by buying bonds on the secondary market, it can later reduce this quantity of money by reselling the bonds. This is simply not possible with helicopter money. It is not even necessary to raise the spectre of the hyperinflation that occurred in Germany in 1923, also as a result of direct monetary state financing

And helicopter money would be nothing more than the “perfect drug”. Why try to deal with crises if it could simply “rain money from heaven”? A government economic stimulus package, apparently without a rise in national debt! And it would certainly be easier to sell people a tax rebate than negative interest rates. But this particular drug habit would be extremely hard to kick.

Deploying the “monetary helicopter” may not have an immediately evident impact on the national debt, but it would weigh all the more heavily on the central bank’s balance sheet. It would deliver a serious blow to the bank’s credibility. What’s more, the resulting currency devaluation could trigger a devaluation race among central banks across the globe.

Legal barriers to the deployment of helicopter money have been erected for good reason: the ECB is expressly prohibited from employing monetary state financing. However, the imagination knows no bounds. Whoever believes that making money rain from heaven is the craziest idea ever hatched for stimulating the economy should look to John Maynard Keynes. At the height of the Great Depression in the 1930s, the famous economist proposed burying large amounts of cash in disused coal mines, so that unemployed miners could dig it up again and spend it.

Munich Re Experts
Michael Menhart
Michael Menhart
Head of Economics, Sustainability and Public Affairs