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.
Dr Raghuram Rajan, addressed a theatre full of audience at the London School of Economics (LSE) on Tuesday 10 May, speaking on the subject: 'Rethinking the Global Monetary System'.
This was the inaugural event for the ‘100 Foot Journey Club’, a collaboration between the High Commission of India, and the Institute of Global Affairs at the London School of Economics South Asia Centre, which the High Commissioner of India His Excellency Navtej Sarna described as 'a club that would create several high profile links, where research would meet public policy.'
Speaking at the event, HE Sarna shared with the audience the origin of the club. It was during his meeting with the President of LSE in March 2016 when he suggested that in view of the long standing relations and close proximity of LSE and the High Commission of India, regular interactive events may be held jointly on issues of contemporary relevance, including research being carried out on India by LSE. His proposal was well taken and it was immediately agreed to strengthen the existing ties with LSE through a new Club. The Club will host academic events and other activities of mutual interest. It will organise at least 6 events annually, including panel discussions, film screenings etc. either at LSE or India House/Nehru Centre.
The next event to be held by the Club at India House on May 13 is an interaction with Dr. S. Y. Quraishi, Former Chief Election Commissioner of India, on elections and electoral reforms in India. This will be followed by a discussion on ‘The Indian Village: Romantic Images versus Historical Realities’ by Prof. Sumit Guha, Professor of History, University of Texas at Nehru Centre on June 6, 2016.
Delivering the lecture at the London School of Economics, Dr 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. He said it is reaching the limits of its ability to stimulate domestic demand and runs the risk that it will only work by taking demand from other parts of the global economy.
With economic growth remaining weak and inflation rates very low, central banks in developed economies have ventured into new territories in recent years, adopting a range of novel measures including quantitative easing and negative interest rates. The term ‘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.
“We’re reaching the limits of what monetary policy can do,” Dr. Rajan said.
“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 added.
If central banks in developed economies can no longer boost domestic demand, Dr. Rajan said their policies can only boost growth and inflation by taking demand away from other parts of the global economy by depreciating their currencies.
He repeated his call for central banks to place greater weight on the impact of their policies on the global economy when making their decisions, and for coordination but independent research to establish which types of policy have negative or positive impacts globally.
“We have to move away from the situation where anything goes,” he said.
