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▼ Kuroda Dismisses Talk of ‘Helicopter Money’
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There is growing concern outside Japan over whether the Bank of Japan will adopt so-called helicopter money as part of its monetary easing policy, since the bank’s current easing policy is seen as bearing little fruit.
Helicopter money is thought to stimulate demand by distributing money as if cash were falling from a helicopter.
However, the concept has many critics because it allows a government to deploy fiscal stimulus without taking into consideration how to repay the fiscal funds.
During a press conference Thursday, Bank of Japan Gov. Haruhiko Kuroda denied the use of helicopter money: “There is an institutionally established system in which the government and the Diet are responsible for carrying out fiscal policy, while monetary policy is conducted by an independent central bank. Under the current legal system, I don’t think we can carry out [helicopter money].”
Financial law prohibits the BOJ’s direct purchase of national bonds from the government. Yet the law also stipulates that the BOJ is allowed to buy the bonds under special circumstances and within limits set by a vote in the Diet.
U.S. Federal Reserve Chair Janet Yellen said the use of helicopter money is “a very abnormal extreme situation” at a press conference Wednesday.
“It’s very important that there needs to be a separation between monetary and fiscal policy, and it’s a primary reason for independence of a central bank,” she said.
Still, foreign investors are interested in the concept and are paying attention to the BOJ’s next move, since the bank’s negative interest rate policy has not shown a clear effect yet.
One analyst from a foreign securities company who went to the United States on a business trip earlier in June and visited institutional investors and financial institutions, reported receiving mostly questions about whether the BOJ would adopt helicopter money.
The helicopter money idea is believed to have been made popular by Nobel laureate economist Milton Friedman in the 1960s. It suggests that a central bank that issues banknotes finances the government’s fiscal funds for the distribution of vouchers or cash to the public.
In general, however, it is believed that a central bank should not support the financial affairs of the government to avoid a deterioration of fiscal discipline.
Implementation of helicopter money includes a central bank’s direct purchase of national bonds from the government. But many developed countries prohibit such moves for fear it might negatively affect fiscal discipline. Some experts also warn that helicopter money might cause hyperinflation or a loss in confidence in the currency.
Helicopter money is thought to stimulate demand by distributing money as if cash were falling from a helicopter.
However, the concept has many critics because it allows a government to deploy fiscal stimulus without taking into consideration how to repay the fiscal funds.
During a press conference Thursday, Bank of Japan Gov. Haruhiko Kuroda denied the use of helicopter money: “There is an institutionally established system in which the government and the Diet are responsible for carrying out fiscal policy, while monetary policy is conducted by an independent central bank. Under the current legal system, I don’t think we can carry out [helicopter money].”
Financial law prohibits the BOJ’s direct purchase of national bonds from the government. Yet the law also stipulates that the BOJ is allowed to buy the bonds under special circumstances and within limits set by a vote in the Diet.
U.S. Federal Reserve Chair Janet Yellen said the use of helicopter money is “a very abnormal extreme situation” at a press conference Wednesday.
“It’s very important that there needs to be a separation between monetary and fiscal policy, and it’s a primary reason for independence of a central bank,” she said.
Still, foreign investors are interested in the concept and are paying attention to the BOJ’s next move, since the bank’s negative interest rate policy has not shown a clear effect yet.
One analyst from a foreign securities company who went to the United States on a business trip earlier in June and visited institutional investors and financial institutions, reported receiving mostly questions about whether the BOJ would adopt helicopter money.
The helicopter money idea is believed to have been made popular by Nobel laureate economist Milton Friedman in the 1960s. It suggests that a central bank that issues banknotes finances the government’s fiscal funds for the distribution of vouchers or cash to the public.
In general, however, it is believed that a central bank should not support the financial affairs of the government to avoid a deterioration of fiscal discipline.
Implementation of helicopter money includes a central bank’s direct purchase of national bonds from the government. But many developed countries prohibit such moves for fear it might negatively affect fiscal discipline. Some experts also warn that helicopter money might cause hyperinflation or a loss in confidence in the currency.
- June 20, 2016
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