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Central banks worldwide have to find new ideas
Central banks worldwide have to find new ideas
Mathilde Farine

GENEVA — Imagine a banker getting on a helicopter loaded with bank notes and flying over the whole country, raining money down on the population. This idea came from none other than Milton Friedman. In the late 1960s, as the economy was struggling, the iconic American economist believed that people would jump on the falling cash and, seeing it as a unique opportunity, would instantly start spending it. Thus an immediate shot of stimulating economic growth, and a new boost to inflation.

This isn't as utopian as it sounds, and is actually rather topical, given that a growing number of economists are currently whispering this idea in the ears of central banks. Asked about the possibility to use "money helicopters" to bring the eurozone out of the doldrums, Mario Draghi said he found the idea "very interesting."

"We hadn't really thought about or discussed helicopter money," the European Central Bank chief added. "It's a very interesting concept that's now being discussed by economists, academics in different circumstances."

The idea is complex and not yet well-defined, according to the Italian ECB president, but it's convincing more and more people from all sorts of backgrounds. In most people's minds, things are relatively simple: What if central bankers, instead of supporting the banks by buying up debt and flooding them with cash, distributed money directly to the citizens?

Wolfgang Münchau, a Financial Times" star columnist, recently wrote about the need for a debate on monetary policy alternatives, explaining that such a debate must start with the acknowledgement that quantitative easing (QE) has failed.

In Europe, Japan and the United States, central banks have injected hundreds of billions of euros, yens and dollars to kickstart the economy, avoid deflation and prevent the financial system from going dry. But it has not succeeded in durably reviving the economy. That's why Münchau believes that central banks have to find new ideas, including that of direct distribution of money to the people.

That's exactly the concept defended by the organization QE For People, which regroups together multiple European associations and economists. "More and more people are becoming aware that we've reached an impasse and that we have to think of new solutions," says Stan Jourdan, explaining that the campaign he leads will "study these solutions and promote them."

QE for people however is still without a specific plan to put forward. "We're made of different organizations that have different proposals. Some advocate a sort of "green QE" that would help us with energy transition," Jourdan explains. "Others talks instead of distributing money to the citizens to boost consumption or to finance investments."

Michael Malquarti, assistant director at Geneva-based Syz Asset Management and the most vocal supporter of the idea of distributing money to the population in Switzerland, says central banks' policies have had little effect on growth and inflation, especially considering the exceptional amounts of money they've distributed.

"They're also very risky," Malquarti adds. "Take Switzerland: With such low rates both for short-term and long-term loans, the Swiss National Bank is encouraging people to borrow to buy property. But this is starting to cause problems on the estate market."

And what's happening in Switzerland is also happening elsewhere in Europe. "Because of the central banks' policies, there's a risk that resources are wrongly allocated, which could potentially create a new crisis," the expert warns.

Malquarti's plan would involve the Swiss National Bank distributing to the country's citizens what he calls a "monetary allowance." He says it would add up to no more than 1.5% of Switzerland's GDP, the equivalent of 1,000 francs ($1,000) per person and per year. This is still "a lot less than the amount the Swiss National Bank spent buying currencies over the last few years to stabilize the franc," he says.

Switzerland's central bank has said that such proposals are outside of its legal mandate, and have not taken a position.

Sergio Rossi, another Swiss economist and professor who also supports some form of QE for the public, offers a more cautious viewpoint. "Distributing a monetary allowance wouldn't weaken the Swiss franc's exchange rate (the problem it's supposed to tackle), but doing that in EU countries could kickstart the eurozone's economy."

If most people agree on the central banks' powerlessness, the question remains: Will they dare let the idea of helicopter money spread? For now, at least, it's starting to gain altitude.

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