So continues our musings on the impact of demonetisation — India’s massive monetary experiment which saw 86 per cent of its currency taken out of circulation on November 8 as the government targeted so-called black money — on the Reserve Bank of India’s balance sheet. This time we wonder about how the RBI *should* act.
This is a guest post by Prof. Dr. Luc Soete, a UNU-Merit board member, on the challenges posed to labour markets by growing automation and the need to distribute the gains from modern technical change with tools such as basic income or helicopter money. It is based on remarks made at a panel event marking the 50th Anniversary of the Science Policy Research Unit at Sussex University earlier this week.
Helicopter money won’t work in Japan, says Nomura’s Richard Koo in a note on Tuesday, because when the typical Japanese citizen finds a 10,000-yen note lying on the ground, she will turn it in at the nearest police station rather than spend it. Put differently, a helicopter money policy can only work if the people in a country have little sense of right and wrong. Koo, of course, is talking about the effectiveness of actual banknotes being thrown out of helicopters in the sky. It’s one of four ways he thinks helicopter money policy could be implemented — since the real challenge with helicopter money is how it would be distributed, and to whom.
Expectations can be tricky things to manage, as in life so in central banking. The Bank of Japan has everyone ramped up for its decision on the 29th. Although not many actually expect helicopter money (for a variety of reasons, including legal and excluding the fact that it’s not clear it would actually work) there is a belief in the market that some extra bit of stimulus is en route — which will be backed up by some fiscal goodness too. Here’s a Barclays summary of those expectations: