“Helicopter money” isn’t coming to Japan anytime soon.
In an interview with The Wall Street Journal, Bank of Japan governor Haruhiko Kuroda ruled out the use of “helicopter drops” of money.
“Helicopter money” is a broadly-defined term that includes anything from governments potentially depositing money into consumers’ bank accounts to the central bank printing money with the sole aim of the government using it to complete projects.
Either way, this experiment isn’t coming to Japan.
While Mr. Kuroda has emphasised his willingness to take whatever steps are necessary to lift inflation to 2%, there is one bridge he says he won’t cross: “helicopter money.” This refers to the central bank printing money (for example, by buying government bonds) to explicitly finance expanded government spending or tax cuts.
“We have no intention to employ helicopter money, anything like that,” Mr. Kuroda said, because it would blur the division of responsibilities between parliament, which is responsible for fiscal policy, and the central bank, which sets monetary policy.
Helicopter money, also called monetary finance, gets its name from an academic paper by the late Nobel Prize-winning economist Milton Friedman, which asserted that dropping newly printed money from helicopters was guaranteed to raise inflation.
Currently, Japan is undertaking what has been termed “Abenomics,” or a three-part effort on the part of the government and the Bank of Japan to jump-start the country’s economy after decades of stagnant growth that includes fiscal stimulus, easy monetary policy, and structural reforms.
And this program — to which the current government is, in year four, very much wedded — is what Kuroda feels should be responsible for jump-starting the economy.
So on the one hand, not a shocking call from Kuroda that will be no helicopter drops in Japan.
On the other hand, as the Journal notes, Japan has been fertile ground for calls from the economics community for more experimental policies like helicopter drops.
The Journal notes that in 1999 former Fed Chair Ben Bernanke floated the idea as a way for Japan to solve its deflation conundrum.
And just last week Bernanke wrote about the idea as a potential solution for central banks at some point in the future.
To be clear, the probability of so-called helicopter money being used in the United States in the foreseeable future seems extremely low. The U.S. economy has continued to strengthen and is not today suffering from the severe under-utilization of resources and very low inflation (or even deflation) that would justify such an approach; and, as I’ve noted, the Fed has other tools still available.
Nevertheless, it’s important that markets and the public appreciate that, should worst-case recession or deflation scenarios occur, governments do have tools to respond. Moreover, with central banks in Europe and Japan struggling to reach their inflation targets, money-financed fiscal actions may receive more attention outside this country.
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