Helicopter Money Isn’t the Solution to Sluggish Growth, BIS Says

(Bloomberg) --

Amalgamating monetary and fiscal policy to bolster the economy isn’t the right solution to the world’s slow-growth, low-inflation challenge, according to the chief economist of the Bank for International Settlements.

“It helps if both march in the same direction,” but “the boundaries between monetary and fiscal policy must not disappear,” Claudio Borio said in an interview with Germany’s Boersen-Zeitung. “That is why I do not believe in proposals such as ‘helicopter money’ or the monetization of fiscal deficits. Otherwise the risk of fiscal dominance, where public finances heavily constrain what central banks can do, would loom large.”

After years of unprecedented monetary stimulus, central banks have almost exhausted their tools, and increased pressure on governments to step up fiscal support. Borio backed their push, arguing it’s “very dangerous” to rely on monetary policy alone -- particularly because the cost-benefit balance of low interest rates and quantitative easing deteriorates the longer they last.

“For far too long, central banks have borne the burden of ensuring the global economic recovery,” he said.

He added that the sustainability of public finances mustn’t be called into question.

“Well chosen and executed investment, for example, is generally preferable to current expenditures,” he said. “It is not a question of fiscal policy per se, but of wise fiscal policy.”

Turning to the European Central Bank, where Christine Lagarde took over the presidency this month, Borio embraced the idea of a fully fledged assessment of the institution’s strategy.

“This is a good time for such a review,” he said. “In general, if you are going to do one, it should be a 360 degree review.”

To contact the reporter on this story: Jana Randow in Frankfurt at jrandow@bloomberg.net

To contact the editors responsible for this story: Fergal O'Brien at fobrien@bloomberg.net, Zoe Schneeweiss

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