ECB’s Stark: IMF Boost Is ‘Helicopter Money’

By Nina Koeppen

The decision by leaders from the Group of 20 largest economies to boost the Special Drawing Rights of the International Monetary Fund is like creating “helicopter money for the globe,” a key member of the European Central Bank Executive Board was quoted as saying Tuesday.

“That is pure money creation,” German business daily Handelsblatt quoted Jürgen Stark as saying, indicating that the move could spur inflation.

The G-20 last week agreed to increase the resources available to the IMF for lending to developing economies to $750 billion from $250 billion, and also agreed an issue of $250 billion in Special Drawing Rights.

Special Drawing Rights are a synthetic currency created by the fund that is used for transactions between it and its 185 member countries. Created in 1969, they help to supplement the existing official reserves of member countries and support the Bretton Woods fixed exchange rate system.

Politicians praised the decision as a significant step toward a global economic recovery, but Mr. Stark said that it was rash and not well thought out. “It was never examined whether there indeed is a global need for additional liquidity,” Mr. Stark said, adding “one used to take a lot of time to check something like this.”

U.S. economist Milton Friedman formed the term “helicopter money,” portraying the image of a central banker dropping cash from a helicopter to stimulate the economy. Federal Reserve Chairman Ben Bernanke picked up on the idea in 2002, when he was a Fed governor, suggesting that a central bank could prevent deflation, or a period of sustained price declines, by issuing more money.