Central banks are already doing the unthinkable -- you just don't know it
Unless, of course, you follow GATA.
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Central Banks Are Already Doing the Unthinkable -- You Just Don't Know It
By Mehreen Khan
The Telegraph, London
Saturday, March 19, 2016
The lords of finance are losing their touch.
Institutions which dragged the world from its worst depression since the early 20th century are finally seeing their magic desert them, if conventional wisdom is to be believed.
Eight years on the from the Great Recession, voices as authoritative as the International Monetary Fund and the Bank of International Settlements -- dubbed the "central bank of central banks" -- have called time on the era of extraordinary monetary policy. ...
Faced with political intransigence, central bankers are openly talking about the previously unthinkable: "helicopter money."
... Dispatch continues below ...
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A catch-all term, helicopter drops describe the process by which central banks can create money to transfer to the public or private sector to stimulate economic activity and spending.
Long considered one of the last policymaking taboos, debate around the merits of helicopter money has gained traction in recent weeks.
ECB chief Mario Draghi has refused to rule out the prospect saying only that the bank had not yet "discussed" such matters due to their legal and accounting complexity. This week, his chief economist Peter Praet, went further in hinting that helicopter drops were part of the ECB's toolbox.
"All central banks can do it," said Praet. "You can issue currency and you distribute it to people. The question is: If and when is it opportune to make recourse to that sort of instrument." ...
For some observers the next phase in extraordinary central bank action has already arrived, and it is Japan which is leading the way.
The Bank of Japan's move to impose a three tiered deposit rate on banks this year can be seen as a covert attempt to transfer funds to the private sector, argues Eric Lonergan, economist and hedge fund manager.
He notes that the BoJ's decision to exempt some reserves from the negative rate represents a transfer of cash to commercial lenders at rate of 0.1 percent. ...
But central bank ingenuity -- however welcome -- raises separate concerns about the accountability of institutions whose independence is sacrosanct but where decision-making is often insulated from public view.
Lord Adair Turner, a former chairman of the Financial Services Authority and one of the earliest advocates of helicopter money, calls for more transparency in a bid to finally smash the taboos around injecting money straight into the hands of consumers or governments.
"I think it is more dangerous for central banks to be forever denying what they are doing," says Lord Turner. ...
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