Proposals

#6 The European Central Bank could distribute money directly to people

During a recession or when the economy is facing risk of deflation, the European Central Bank (ECB) could stimulate the economy by making direct transfers to citizens of the eurozone. Citizens would be free to spend the money as they wish, which would boost the economy through more consumption.

The proposal, which has often been called “helicopter money” or “people’s quantitative easing” resembles universal basic income. However, one key difference that, unlike basic income, a helicopter money programme would likely be occasional and not permanent, as its unique goal would be to tackle a short-term economic crisis.

Proposals for how to implement helicopter money in practice vary between proponents. Some economists argue that it would be simpler for the ECB to distribute an equal sum of money to all citizens across the eurozone, while others argue that it would be more effective to target the transfer to low-income citizens. Indeed, low-income citizens are more likely to spend the money in order to cover their basic needs, instead of merely accumulating it on their bank accounts.

There are also different options for how to distribute the money logistically. Some suggest that the money could be wired via normal bank accounts, while others suggest that the ECB would need to set up a digital euro system so that it can directly deposit money into bank accounts that would be managed by the national central bank (instead of a private bank).

➕ Pros

• Distributing money directly to citizens would have a more immediate impact on the economy and be more transparent than channeling money through the financial system.
• It would contribute to reducing inequalities and fighting extreme poverty, especially if targeted at lower-income households.
• It would be more fair as all corners of the economy would benefit from it and not just businesses and people who are able to get bank loans.
• It would ensure that the ECB is equipped with workable tools even when commercial banks do not lend enough to the economy.

➖ Cons

• It is traditionally not the role of the independent central bank to decide who should get money or not, but the role of elected politicians. It could create confusion between the role of governments and the role of central banks.
• It would only create a short-term boost of consumption, not long-term growth and investment.
• There is a risk that it will create too much inflation, when too much money is injected in the economy and is therefore spent on a limited number of goods and services available in the economy, thus pushing prices up.