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Rajan questions 'helicopter money' policy's feasibility

Calling for a debate among central bankers on 'helicopter money' policy, RBI Governor Raghuram Rajan on Tuesday questioned political feasibility and economic benefits of such an easy direct-to-public money transmission.

'Helicopter drop of money' is used as a metaphor for an unconventional monetary policy tool that typically involves central banks printing large sums of money and distributing it directly to the public or investing in public projects.

So far a hypothetical monetary policy, it is being debated to spur spending and boosting economic growth in times of near-zero interest rates and ultra-low or negative inflation.

Delivering a lecture here at the London School of Economics, Rajan said it needed to be asked whether the global monetary policy was increasingly becoming part of the problem, rather than being part of a solution.

"It is not absolutely clear that throwing the money out of the window, or targeted cheques to beneficiaries will be politically feasible in many countries, or produce economically the desired effect," the former Chief Economist of IMF said. 

Last weekend in New Delhi also, Rajan had said that when the rate of price rise threatens to fall below the lower band or zero, one of the options before the governments and central banks is 'helicopter drop' of money. However, there was a probability that people may not spend and save it, thereby not contributing to growth, he had said.

'Helicopter drop' was first proposed as an alternative to quantitative easing by the noted American economist Milton Friedman way back in 1969. 

However, it became popular when Ben Bernanke referred to this term in 2002, when he was a Federal Reserve Governor. This earned 'Helicopter Ben' moniker for Bernanke, who became US Fed Chairman in 2006. 

The term has become even more popular in recent times in the wake of the US central bank's quantitative easing (QE) policy and is now being referred to as 'QE for the public'. 

Interestingly, Bernanke as Fed Chairman embarked on various rounds of 'quantitative easing' to invest trillions of dollars into the system to boost economic growth in the US.

Rajan, known for his frank views on domestic and global macroeconomic issues, however has been lately seen as disapproving lower interest rates to boost growth, saying low rates actually lead to people saving more rather than spending. 

RBI Guv for 'traffic signal'-like control on central bankers

Proposing 'traffic signal' like checks on central bankers, RBI Governor Raghuram Rajan on Tuesday asked them to shun monetary policies that can negatively impact other economies, saying even India can follow the same rules in about a decade. "By the time any of this actually gets into policy, I have no doubt India will be among the top 3-5 global economies — around 10 years from now — and our monetary policy will also be subject to the same rules," he said. 

Delivering a lecture at the London School of Economics, the former chief economist of International Monetary Fund (IMF) said the policies with zero-to-positive spillover effect for the rest of the world can be given 'green label', while those with negative potential impact for others should be labelled 'red'. 

Policies that are negative in short-term but can be positive in longer term can be given an orange label, he said. Giving the 'driving analogy', the outspoken Governor also reiterated his call for "a more internationally responsible global monetary policy that follows rules of the game". In his lecture, 'Rethinking the Global Monetary System', Rajan called on the world of academia to conduct deeper research and analysis on how such a system could work in a decade's time. 

"We need some element of international responsibility in setting of monetary policy... 
We need rules of the game based on how policies play out in the short term versus long term, will they have negative effects on the rest of the world or positive effects?" he said. 
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