Understanding the precise nature of helicopter money

The purest version of helicopter money is a situation where the central bank directly credits economic agents ’ accounts in its balance sheet (it gives them central bank banknotes or cryptocurrency). Today, an indirect form of helicopter money is being used: the government makes targeted public transfers to economic agents, financed by bond issues that the central bank buys (presumably irreversibly) by creating money. Economic agents receive a bank deposit, balanced by a matching credit in banks’ reserve accounts at the central bank. Pure helicopter money therefore gives economic agents central bank money; indirect helicopter money gives economic agents bank deposits; if fiscal policy is well targeted, the economic agents are the same . The only difference concerns the liabilities of the government (the government and the central bank combined): In the case of pure helicopter money, the increase in the government ’s liabilities corresponds to an increase in economic agents’ deposits at the central bank (or in banknotes held), i.e. non-interest-bearing money. In the case of indirect helicopter money, the increase in the government ’s liabilities corresponds to an increase in banks’ excess reserves at the central bank; the government incurs a short-term monetary liability, but it is remunerated at an interest rate linked to the central bank’s key interest rate. As long as short-term interest rates are very low, there is therefore no difference between pure helicopter money (economic agents’ accounts at the central bank are credited) and indirect helicopter money (targeted fiscal deficit , irreversibly monetised by the central bank). But this is no longer true if short-term interest rates - and therefore the interest rate on banks’ excess reserves - rise.