The ECB has distanced itself from the idea of handing out cash – so-called helicopter money – after its chief economist said it was an option, in theory. The ECB is already spending billions through its quantitative-easing programme to stimulate the economy and ward off deflation .
“Helicopter money is not currently part of the discussion in the Governing Council,” ECB Executive Board member Benoit Coeure said on Wednesday. “To be honest, I don’t see how it could work without some kind of risk-sharing with governments, which could be practically and legally problematic.”
In its most straightforward version, helicopter money would involve central banks financing government stimulus programmes. But the ECB is forbidden to do that, so Nordea believes it may consider sending cash directly to the citizens of the 19 euro zone countries.
“Go back a couple of years and QE buying of government bonds seemed impossible for the ECB,” said Nordea’s chief fixed income analyst, Jan Von Gerich. “We are increasingly in an environment where central banks have to try something new.”
Consumer prices in the euro zone continued to fall in March, data released on Thursday showed, and renewed slide in oil prices has reduced long-term inflation expectations to near record lows.
By Nordea’s calculations, the ECB could afford losses of 444 billion euros, equal to 1,300 euros for each person. That’s based on the capital paid into the euro area’s central banks by national governments and the profits they have generated on holding assets such as gold.
“This is the cap if they decide to write cheques directly to citizens, because then they are effectively giving away money for nothing and that eats away at their capital,” Von Gerich said.
He added that the ECB could do more if it was prepared to operate with negative capital, as some central banks in the developing world have done, but that would threaten its independence, since it might need to be recapitalised by governments. (Editing by Larry King)