Review of helicopter money with quantitative easing and currency manipulation

1. HELICOPTER MONEY...

2. What is helicopter money?
• An unconventional monetary policy tool aimed at
bringing a flagging economy back on track.
• It involves printing large sums of money and
distributing it to the public including govt with a
non repayable feature.
• Similar to quantitative easing. QE is apolicy in which
money is injected into the economy by purchasing
securities whereby these securities are issued with
a repayment demand

3. Origination....
American economist Milton Friedman coined this
term in the year 1969. It basically denotes a
helicopter dropping money from the sky. Under such
a policy, a central bank "directly increase the money
supply and, via the government, distribute the new
cash to the population with the aim of boosting
demand and inflation.

4. Application....
In Europe-The European Central Bank in the year
2016 launched a targeted long term refinancing
option(TLTRO) whereby central bank would transfer
funds to banks at negative interest rates.
Also the use of interest differential rates on tiered
reserves to support commercial banks profitability in
the face of negative interest rates

5. In Japan- initiated by Prime minister Shinzo Abe
and Bank of Japan's Haruhiko Kuroda
Central bank could monetize more government debt
to finance infrastructure
Bank of Japan in an ongoing review of its monetary
stimulus program was reported to be considering
policies somewhat similar to "Helicopter Money",
such as selling 50-year or perpetual bonds.

6. QE V/S Helicopter Money..
• Like all expansionary monetary policies in general,
quantitative easing (QE) and helicopter money
involves money creation by central banks to expand
the money supply.
• Under QE, central banks create reserves by
purchasing bonds or other financial assets,
conducting an 'asset swap'.
• On the contrary under Helicopter money central
banks give away the money created, without
increasing assets on their balance sheet.

7. Advantages...
• Removal of economy from coronavirus hibernation
mode
• Increase consumption expenditure of public
• Boost up SSI Sector
• Finance agriculture
• Finance govt to carry out public expenditure
• Finance for infrastructural development
• Increases aggregate demand and supply

8. Disadvantages...
• Inflation will increase since purchasing power of
common public will increase
• Prices of commodities may Hike since people
would try to hoard commodities in their homes
• Borrowing may increase
• Fear of coronavirus since people would create
hastiness thereby avoiding social distancing
completely
• Devaluation of home currency

9. Legal implications...
Helicopter money would be outside of the mandate
of central banks, because it would "blur the lines
between fiscal policy and monetary policy" mainly
because helicopter money would involve 'fiscal
effects' which is traditionally the role of governments
to decide on

10. Currency manipulation

11. Currency manipulation....
1)Is an effort made to tinker with the value of
currency thereby making exports competitive and
reduce its debt burden
2) Currency manipulation has the effect of reducing
the value of its currency
3) Many countries adopt these practices to devalue
its currency to make exports more competitive

12. How it takes place??
• Efforts are made to artificially lower down the value
of Home currency
• The manipulating country will sell its own currency
and buy more of foreign currency thereby creating
a demand for the foreign currency in the domestic
market
• The demand for the home currency reduces with a
fall in its value

13. How to identify the same?
The International Monetary Foundation (IMF) and the
World Trade Organization (WTO) have provisions
prohibiting the use of currency manipulation to gain
trade advantages.
Pointers-1) Did Country X have more exports than
imports (an account surplus) over a set six-month
period?
2)Did Country X add to its foreign exchange reserves over
that same six-month period?
3)Are Country X’s foreign exchange reserves more than
sufficient ?

14. QE vs currency manipulation
• The former is an interest based policy however the
latter is a currency based policy
• Though it is an interest based policy it increases
aggregate demand and supply whereas currency
manipulation only aims at exports
• Currency manipulation affects Balance of payment
adversely however QE never
• Though both result in devaluation of currency but
the latter is strictly prohibited globally by IMF and
WTO