23 May 2015

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The Centre for Monetary Advancement seeks to develop and promote ideas to create a monetary system structured to provide greater economic stability and sustainable long term growth through efficient and equitable institutional arrangements. CMA is a not for profit and nonpartisan organization.
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The E-money Helicopter (Hel-e) Drop

Two basic central bank reforms to increase monetary policy effectiveness, equality and stability:

1. Extend the provision of electronic deposit accounts or e-money by the central bank (CB) to all people and other entities instead of only depository or financial institutions. The CB is tasked with providing the supply of money and should therefore also provide an efficient electronic means of making payments and depositing the money it creates. Physical notes, coins and commercial bank deposits or other forms of broader money will continue to exist in their current form.

2. Incorporate new policy tools so the monetary authority can attain its targets more effectively and equitably. The principle new tool is the e-money helicopter drop (hel-e drop). When the monetary authority is pursuing expansionary monetary policy in order to attain its goals related to unemployment, GDP growth or inflation it can periodically expand the supply of central bank e-money directly and evenly into all citizen's accounts through helicopter drops. Other policy tools such as the ones currently employed may also utilized when optimal. The rate of monetary growth to the public should be periodically adjusted by the central bank in order to attain its targets. Expansionary policy would entail increasing the rate of helicopter drops and a contractionary policy would involve slowing the rate of money growth. Under extreme circumstances the central bank may stop hel-e's or even issue securities to contract the money supply. New legislation would need to be crafted to allow central banks to perform hel-e's including strict limitations on how they are performed.

Principle benefits of proposal:

Hel-e drops will allow the monetary authority to more effectively achieve its targets than current policy tools while stimulating less credit and financialization. As a result greater real GDP growth and stability should prevail.


Hel-e drops are a more effective tool for achieving central bank targets. Unlike interest rate targeting a lack of demand for credit or high unemployment should not diminish the effectiveness of hel-e drops in generating AD. High unemployment actually makes hel-e drops more effective in generating spending because liquidity preference of unemployed people is very low. Studies of tax rebates which occurred in 2001 and 2008 in the US and Australia show that helicopter drops are effective in generating stimulus. 20 to 40% of the money received in the tax rebate of 2001 was spent in the quarter when the money was received and approximately another third in the following quarter (Johnson et al. 2006), only non-durable spending was included in this study. 12-30% of the 2008 tax rebate was spent on non-durable goods within three months of payment receipt, and a significant amount more on durable goods resulting in 50-90% of the payments spent (Parker et al. 2013). The tax rebate in Australia in 2009 resulted in 40% spent in the quarter of receipt (Leigh, 2012).

No zero lower bound on hel-e's.

As a result of the central bank more effectively being able to achieve its targets productive forms of investment should increase because these depend on stability (Guiso and Parigi, 1999) and economic growth. Higher levels of productive investment should crowd out speculative activities and higher more stable growth should also make productive investment more attractive than speculative activities on a comparative basis.

Hel-e's will maintain a higher interest rate than an interest rate targeting regime for any level of stimulus generated because hel-e's stimulate through increased monetary wealth, not a lower interest rate. In any specific economic environment a higher rate will stimulate credit and financial sector growth less than a lower interest rate. As a result of employing hel-e drops as a policy tool, credit creation and financialization will be increased less than under a rate targeting regime. Less credit will...

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