One way for governments to deliver economic stimulus in difficult times is to print money and then drop it from the sky. This is called “Helicopter Money”, a term coined by the economist Milton Friedman, although to be fair Hitler had had the same idea a generation before (and Germany had the world’s first modern helicopter, the Focke-Wulf Fw 61 so he could have done it, technically). I suppose were Friedman to be working on the idea today, he would have opted for a fleet of self-guiding autogyros or eco-friendly dirigibles and we’d be talking about Drone Dollars, but it the logistical challenge would remain. How exactly do you get emergency cash into the hands of the citizenry?
One of the unexpected consequences of the COVID crisis and the international response to it may well be to accelerate the transition to digital wallets. In a world of digital currency, the government could press a few buttons and send the stimulus cash into consumers’ pockets in a flash.
Digital stimulus is a very good thing, but there are different ways to do it. Pressure groups, reformers and economists (such as Positive Money) have long argued that Helicopter Money (HM) is better than Quantitative Easing (QE) in circumstances of disaster and distress. The argument is that instead of pumping money into financial markets (as central banks did with QE in response to the Great Financial Crisis of 2008), it would stimulate the real economy by transferring money directly to citizens. If that is correct, then how should we effect such transfers?
The financial system is of course an option. Instant cash handouts work well in an economy where everyone has a bank account (eg, Denmark) and some form of identity card (eg, Denmark). The central bank “prints” money that goes via the banks to the customers. And for the the few remaining people who don’t have a bank account, well, they can go to a Post Office or whatever.
But what if you are in a country where not everyone has a bank account? Malaysia, for example. There, the government took an interesting and direct approach to boost financial inclusion by sending cash to people with electronic wallets (either Grab, Boost or Go) earlier in the year. Or Colombia, where the government’s Ingreso Solidario stimulus payments went via bank accounts or mobile wallets to millions of needy families.
Meanwhile in the United States, while many people did get their stimulus money by modern means, roughly 70 million American families were waiting for funds to arrive in the form of a paper check and turned to high cost channels to survive, using bank overdrafts, payday loans and check cashers to get by. And when the checks were paid into bank accounts, they were often snaffled by the banks themselves and so not available to boost consumer spending. (In April, the New York Times NYT+1.6% covered a few egregious cases that made this point rather well.)