The two terms Helicopter Money and Quantitative easing have become more popular after they were used by the chief minister of Telangana state K.Chandra Sekhar Rao (KCR). In his video conference with the Prime Minister of India, Narendra Modi, KCR mentioned these two terms and he believed that these two policies can boost up the economy. In this article, we will know briefly about them in an easily understandable way.
This is a monetary policy that was first introduced by Milton Friedman. Helicopter money denotes that a Helicopter dropping money from the sky. This is done to rotate more money in the hands of people so as they can buy the supply provided by the government. In this system, the central bank, in India it is the RBI should print large sum of money and the governments should distribute them to the people. The Chief Minister of Telangana KCR said that helicopter money can be used as a policy of quantitative easing(QE). So, we should know what is Quantitative Easing?
Quantitative Easing is the process when the central bank (RBI), buys government bonds, ceased bank assets. So, for buying them, the RBI needs to pay the government and banks. Paying to the government and the banks indirectly means paying money to the public. When banks get paid excess amount by RBI, then they reduce the interest rates, thus people come forward to take more loans which mean money will be rotated in their hands. This helps them to buy more things from the market and thus, boost up the economy. It was a successful economic inclusion that the USA followed during the 2008 financial crisis.
Helicopter money and Quantitative Easing are not the same. But, both involve in excess printing of currency notes by RBI. In the helicopter money case, the printed money will be directly given to the people. But, in the case of Quantitative Easing, the RBI prints money but uses them to buy government bonds, Bank assets and then, the money goes indirectly into the people’s hands. Most of the expert bankers, will always encourage Quantitative Easing but not helicopter money.
However, in both cases, considering the present situation, before implemeting the quantitative easing, few of the essential industry outlets must be given permission to run and to produce and match the supply and demand.