Is "helicopter money" European Central Bank's next measure?

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The idea of "helicopter money" is straightforward: central banks would create new cash and give it to people, like an air drop of supplies. As people spend or invest it, economic growth and inflation would rise, the US news agency Associated Press (AP) reports.

The potential efficacy is tempting in a world where central banks are struggling to nudge up low inflation and growth with their current tools: repeated interest rate cuts - often below zero - and extraordinary stimulus programs like bond purchases.

As the world economy faces the threat of deflation, a long-term weakness in prices and wages that kills off growth for years on end, the sound of choppers bearing bank bags is being heard more and more in discussion among economists.

- Helicopter money may be the next big thing, as policymakers reach the limits of standard unconventional practices - says Andrew Kenningham, senior global economist at Capital Economics in London.

European Central Bank head Mario Draghi was asked this month about the possibility of using "helicopter money" after the bank announced a further round of stimulus measures, including negative interest rates and more massive bond purchases aimed at pushing up inflation and growth.

- We haven't really thought or talked about it. It's a very interesting concept that is now being discussed by academic economists and in various environments - said Draghi.

Nobel laureate economist Milton Friedman first proposed the idea almost 50 years ago. It is close to - but not quite the same - as quantitative easing, the method central banks such as the U.S. Federal Reserve (FED), Bank of Japan, Bank of England, and ECB have used since the financial crisis and Great Recession of 2007-2009.

Under quantitative easing, central banks buy government bonds from commercial banks. Central banks pay for the bonds by electronically increasing the amounts of money in the accounts that the commercial banks are required to hold at the central bank. When the account balance goes up, new money is created.

There's just one problem. The money is sitting in a reserve account. If the bank itself is shaky, or has become cautious about lending, the central bank can print all it wants, but the new money won't reach people.

Helicopter money gets around that dependence on banks. It aims to put the money directly into circulation, AP underlines.

Those opposing this idea warn that money-printing can be a disaster if governments come to depend on it or central banks lose the courage to withhold it when it's not needed. It can result in hyperinflation, as it did in Germany in the 1920s and more recently in Zimbabwe.

The time to do it, backers of the idea say, is when the economy is so slack that inflation is not a worry.