Paris (AFP)

The coronavirus crisis has revived the debate on the use of money "by helicopter", or "parachuted", to support the economic recovery after the coronavirus, that is to say, the payment of cash directly to consumers so they can spend it quickly.

Like the United States, which included a check for 3,000 dollars for a family with two children in their recovery plan, or Hong Kong, which pays more than 1,000 euros to its residents, some states have already and already use this unconventional remedy to end the crisis.

Some elements to better understand what it is.

What is "helicopter money"?

The American economist Milton Friedman, considered one of the fathers of neoliberalism, launched the expression "helicopter money" in the 1960s. The Nobel Prize in economics wanted to bypass the usual channel of liquidity transmission between central banks, who create money, and traditional banks. "Since monetary policy is not always effective and neither is the budget, because there are many intermediaries, his idea consisted in directly feeding the consumer by offering him a global or monthly amount", explained to the AFP Philippe Waechter, chief economist at Ostrum Asset Management. By purchasing goods with this money, the consumer would theoretically have a faster effect on the economy.

How would this money be distributed?

There are two main options. First, central banks could put this money directly into the account of consumers. The state could also issue checks to its citizens, in the form of bonuses, for example, or by adopting fiscal measures. It would then refinance with its central bank, so that its debt is not worsened by the measure, as provided for in the concept developed by Friedman.

Why is the debate being revived?

After the 2008 financial crisis, central banks intervened massively to revive the economy by massively buying public and private debt and lowering their interest rates to historic lows, in some cases going into negative territory. "With the exception of people who took advantage of low rates to buy property, the direct and immediate impact of this accommodative monetary policy on the consumer was almost non-existent," said Mr. Waechter. States and economists are therefore wondering about the need to use money "dropped" after the sudden economic downturn by the coronavirus so that recovery is as rapid as possible.

Why is this device debated?

Beyond the technical difficulties for a central bank to pay money directly to consumers, economists do not agree among themselves on the results of this measure and some doubt a decisive impact on consumption. If consumers do not have a deadline for spending this money, they could save it and the measure would not have the desired effect.

The situation is also different in different countries. In the case of the United States, for example, the money promised by the state could first be used to compensate for medical costs incurred or loss of employment, as pointed out by OECD economist Laurence Boone, on BFM Business. "The American social security system has nothing to do with that in Europe", she recalled, referring in particular to the use of short-time working in EU countries, which makes it possible to avoid dry layoffs in waiting for resumption. "Since the Americans do not have this, it is absolutely necessary to make direct cash transfers", she stressed, suggesting that EU countries did not a priori need to use this measure to the moment.

The French economist Jean Pisani-Ferry believes that the question does not arise for the moment. "Consumption is constrained today" by containment measures. "Let's wait to see more clearly," he told AFP.

© 2020 AFP