Bernard Hickey: Want some free money?

Helicopter money is the idea that a central bank attempts to stimulate the economy with a blanket payout. Photo / Getty Images

Just imagine that one day the Reserve Bank deposited $1000 in your account, and that of every other citizen in New Zealand.

It's sounds crazy, yet it's something some central bankers are talking about in a world of deflation, negative interest rates and slow economic growth.

This idea is called Helicopter Money and it's suddenly the hot topic in the sometimes arcane and always sober world of central banking. It's a truly radical idea that would seem utterly irresponsible and dangerous in normal times.

It's the sort of thing we used to think only Robert Mugabe would do and would inevitably lead to everyone pushing around barrows of cash to buy bread.

Helicopter Money would see everyone get a big dollop of freshly invented money to spend on cigarettes, booze or a trip to Rotovegas, if they saw fit. It seems to break all the rules about economics, let alone of politics.

Its modern genesis came in a 2002 speech by Federal Reserve Governor Ben Bernanke. Speaking as Japan was grappling with deflation, he said one option would be for a central bank to finance a tax cut for everyone - a Helicopter drop. This term was invented in 1969 by the godfather of monetarism, Milton Friedman.

He used the parable of dropping $1000 bills from a helicopter to show how the immediate boost to spending would increase inflation and output in an economy that was underperforming and suffering chronic deflation. It all seemed an academic exercise that made for a great lecture and very poor economics and politics.

Until now.

That's because the world's biggest Central Banks cut their interest rates to almost 0 per cent during the Global Financial Crisis. It helped avoid financial armageddon, but proved ineffective in restarting the engine of growth. Almost a quarter of the world's economy now has negative interest rates. The theory is it will force banks to lend money and encourage people to spend.

But it appears this apparent last resort isn't working either. Europe's prices fell unexpectedly in February and Japan's negative interest rates had the worst unintended consequence - nervous investors pulled their money home and pushed up the yen. So here is the ultimate last resort - printing money to give to real people to spend on real goods and services.

Late last year the former chairman of Britain's Financial Services Authority, Adair Turner, recommended something similar.

He suggested monetary financing of Government deficits, which means the central bank prints money to lend to the Government to spend on new infrastructure or tax cuts or whatever it feels like.

The other suggestion is the central bank simply pay the money into everyone's accounts. It would be fair and have an immediate effect because much more of it would go to poorer spenders, rather than richer savers.

Central Banks don't have to get elected so can do it without the pesky political issues of who deserves the money and who doesn't.

Anyway, many argue the world is in such an economic mess because politicians have failed to reform economies and fix infrastructures - so why not give the job to a bunch of technocrats?

No one is suggesting this is appropriate for New Zealand any time soon. Our Reserve Bank still has another 2.5 per cent of interest rate cuts to go and is expected to signal a few as early as this Thursday.

But Helicopter Money is now being actively discussed in the Northern Hemisphere and, as we've seen over the last decade, where they go, we often follow.

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