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Helicopter money would increase savings, but not consumption

The direct transfer of funds by central banks to consumers, also known as Helicopter money, recently are described as a radical form of incentives that should encourage inflation. However, the measure probably would not have so much influence, as according to many economists and analysts, they will increase customer saving, but not the consumption.

If people receive 200 EUR in their bank accounts each month within the year, without any obligation on these payments, they are more inclined to save them, than to spend them, according to an economic survey in 12 European countries, conducting 12,000 people. Only 26% from the asked people, say that they will spend the largest amount, while 52% will save the money, invest them or would not do anything and 15% from the people will pay debts.

If people do what they have indicated in the survey, the effectiveness of this form of incentives should be put into a doubt. Rhe alternative would be to give money to the state for infrastructure spending, tax relief or debt repayment. This is an opportunity for the European Central Bank (ECB), which is prohibited from directly financing governments.

The idea of Helicopter money may seem strange, but the concept, first formulated in the 60s by Nobel laureate Milton Friedman, is discussed seriously by a number of economists. The reason is the failure of efforts by central banks to stimulate growth and inflation, although pumped trillions of dollars into the financial markets. The regulators around the world now refrain from certain helicopters money as a possible tool.

President of the European Central Bank (ECB) Mario Draghi called helicopter money a “very interesting concept” earlier this year, but the bank said they did not have discussed such an option. The Governor of the Bank of Japan Haruhiko Kuroda repeatedly ruled out the introduction of helicopter money, arguing that the measure before standing legal obstacles, and his British colleague Mark Carney said it was unrealistic idea.

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