Helicopter Cash Listed as Tool to Consider by Riksbank Official

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Sweden’s central bank must be ready to innovate if monetary policy needs to be more expansionary, and shouldn’t rule out new tools from helicopter money to deeply negative interest rates, Deputy Governor Anna Breman said.

“Current monetary policy is not necessarily appropriate in a changing society,” Breman said in a webcast speech on Tuesday. “We need to be open to innovation and new thinking.”

While the speech echoes comments from Governor Stefan Ingves that the Riksbank may need to embrace more unconventional measures in future, Breman’s remarks include one of the most specific discussions yet seen from an advanced-world central banker on barely tested boundaries of monetary policy. She didn’t come to any firm conclusions, however.

Helicopter Cash Listed as Tool to Consider by Riksbank Official

Breman, who also discussed dual interest rates and yield curve control, said that for now, “a negative repo rate and increased quantitative easing” are the most obvious tools to use if more stimulus is needed in the short term. That view distinguishes her from Ingves, who has shown reluctance to revisit subzero monetary policy.

On helicopter money -- the idea by economist Milton Friedman of figuratively airdropping banknotes to citizens -- Breman observed that a “People’s QE” tool where the central bank distributes money to households, perhaps via e-krona accounts, “may seem to be an effective tool to get inflation to rise.” Its legality is unclear, she added.

Breman’s Toolkit

Potential measures that the Riksbank shouldn’t completely rule out
  • Helicopter money, perhaps delivered via e-krona accounts
  • Deeply negative interest rates
  • Dual interest rates
  • Yield curve control

Breman also discussed the possibility of cutting rates much further below zero, citing -5% as an example. She said such a policy isn’t relevant at present, and would have significant side effects, but observed that “the idea is interesting, and we are constantly analyzing where the lower bound for the policy rate might be.”

Of the unconventional ideas mentioned, yield curve control and dual rates are easiest to implement, Breman told reporters.

“We must be prepared, be able to act decisively and have the courage to use new and untested tools if price stability is under threat,” she said. “I do not think that any of the tools I have discussed today should be ruled out, as long as their use is lawful.”

Common Lament

The remarks build on a common lament from developed-world central banks confronting the depletion of monetary tools from interest rates to QE.

In the U.K., which unlike Sweden hasn’t yet tried out negative interest rates, Bank of England policy maker Gertjan Vlieghe is in favor of deploying that policy if needed, insisting last week that “we need to look for tools other than QE to deliver further stimulus if required.”

Breman isn’t currently advocating a return to subzero monetary policy, saying it’s not “relevant” at present, but she does see the possibility of doing so.

“There are important side-effects on the economy to consider even in the longer term,” she said. “On the other hand, it is possible in the near term to return to slightly negative levels of around –0.5% to support the economic recovery.”

Sweden, one of only five jurisdictions to have brought rates below zero, was the first to exit the policy when it returned its benchmark to zero in December 2019.

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