Just a few years ago, it was unthinkable that the key interest rate would not only move towards zero but even slip into negative territory. It was equally unthinkable that German savers would barely receive any interest and now even face the threat of negative interest rates on their deposits.
All of this has been driven by the ECB in recent years to regulate the massive distortions in the financial markets following the 2006 to 2008 financial crisis. However, this inherently powerful toolkit of the ECB, allowing it to lower interest rates at will, seems to have had little effect. Even the massive purchase of government bonds has not shown the desired effect. Is the ECB therefore at its wit’s end? This is not the case, as there is now active consideration of so-called helicopter money.
What is helicopter money?
Figuratively speaking, such an ECB measure involves money being dropped from a helicopter onto cities. Specifically, this means that every citizen receives a fixed sum, e.g., 1,000 EUROS, transferred directly to their account without any repayment obligation. Thus, it is a pure government gift. Discussions within the ECB on how every citizen could be reached are already well advanced. For example, there are plans to compel the responsible tax offices or financial authorities to transmit the relevant bank details so that transfers can be made.
What is its purpose?
Not only within the ECB, but also among renowned economists, this instrument is considered quite suitable for providing significant economic stimulus and simultaneously raising inflation to a desired level.
Japan could serve as a potential precursor in its implementation. For some time now, Japan has been suffering from economic weaknesses coupled with deflationary tendencies, without its zero-interest rate policy having provided a remedy. Even further steps, which the ECB has not yet planned or will not implement, have been unsuccessful. In this respect, Japan, as the first highly modern economy, is virtually “predestined” to take the next step, i.e., to distribute helicopter money.
Therefore, observe Japan; a crucial preliminary decision is likely to be made there!
What do you think of the idea of “helicopter money”? We look forward to your comment.
Image source: Fotolia.com, Photographer: jules
