Amidst the clamor surrounding Rahuram Rajan and the speculation on his term as RBI governor getting renewed, here is a needull talking about the unintended consequences of helicopter money.
The theory is that the lucky people who pick up the new currency would go out and spend it. Rajan raised another possibility: “Somebody getting this money and seeing the central bank governor throwing money out of the window will say, ‘Is this guy crazy? Has the world gone nuts? I’d better save much of this because I’m not sure what will happen.’ ” If this scenario played out, most of the new money would end up being stored in bank accounts for precautionary reasons, and its creation wouldn’t have much impact on the broader economy.