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In "normal times" my understanding is that one way Central banks create money is by extending a loan. The loan ensures money will be soaked back up in future, thus preventing inflation / devaluation of currency. So any money central reserves "magic up" does need to be paid back (there isn't a magic money tree in normal times). This is the reason why banks can't just give everyone free money.

In the UK during the COVID pandemic, around 5 million self employed people have been barred from working due to lockdown conditions, as well as many businesses not deemed to provide key services. Sectors to do with food production and trade are allowed to continue for obvious reasons. Would it not make sense then to be able to print money to replace lost income for affected people, without creating debt? The situation is that people will earn effectively no money until this lockdown is over and won't be able to pay rent / buy food. They will not become "richer" by replacing lost income, merely keeping them at the current level - so no inflation.

Many countries have introduced furlough schemes where most of people's wages are covered by QE, but of course there is debt attached that presumably must be paid back via increased taxation (austerity measures) to soak up this excess money in future - but is there really excess money while people aren't able to generate their own income? Can't the central bank safely print money without expecting a loan to be paid back?

I stress that this proposed method would only be used in the unique situation of the global pandemic, which itself is unique from the Great Recession where at least everyone was still able to generate their own income. Would some facade be broken here where by helicopter money could actually be pumped into vital infrastructure that would also unlikely cause inflation even in normal times?

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The question as currently stated is too long, and contains misleading statements. I will answer the core of the question, which I believe is as follows: why don’t countries use “helicopter money” to replace incomes?

(“Helicopter money” is the act of the central bank directly handing out money to households to stimulate the economy.)

The answer to that is straightforward: central banks are not legally allowed to undertake such actions (in every country I am aware of), and there is no legislative time to consider such an act. Instead, the equivalent was done: the fiscal authority makes transfers, and the central bank undertakes quantitative easing. From the perspective of the private sector, there is no difference between those policies.

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  • $\begingroup$ No difference as long as the central bank buys an equal amount of government debt. $\endgroup$ – Fizz May 9 at 20:12
  • $\begingroup$ I'm not sure it's true that it isn't legal. The ECB confirmed that it is positivemoney.eu/2016/12/… $\endgroup$ – brucezepplin May 11 at 9:44

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