by Thorsten Polleit
On 10 March 2016, European Central Bank (ECB) president Mario Draghi gave rise to expectations that the monetary authority could, at some stage, issue helicopter money. The latter basically denotes a free handout of new money to, say, consumers, corporates and public sector entities. Why would the ECB want to do such a thing?
There is concern that the euro area banking sector is no longer willing or in a position to churn out ever more credit and money. It is therefore feared that the euro area might fall into deflation; that is, a period of falling prices, accompanied by declining production and employment. This, in turn, could endanger the entire euro-project.
Helicopter money, some economists say, could prevent such an outcome. The ECB just needs to print up new money and hand it over to ‘those in need’. The new money will then be used for purchasing goods and services. This, it is said, will support nominal incomes: It will lead to higher goods production and/or higher goods prices.