Banque de France opening a crack in the door to “helicopter money” to businesses? 1/

In an Op Ed in Le Monde Villeroy de Galhau mentions “the possibility that the central bank creates money on a durable basis to fund businesses directly”. There is a condition though 2/

This would be thinkable only in case of a “major downward risk to price stability”. (Also conditions on ensuring CB independence). Fair enough ...3/

But it’s interesting VdG openly discusses it. We reiterate our view on this: getting CBs to “vacuum out” emergency loans granted during the pandemic would make sense 4/

It’s less problematic in terms of compliance with the Treaty IMHO than getting the government to trigger their guarantees on loans and then get them funded via QE 5/

And it’s more efficient than the usual “helicoper money” schemes sending “checks” to households in our current predicament. Supporting consumption is not a priority now. Ensuring businesses survive without a lasting deterioration in their financial position is 6/

In practice, CBs could buy back the loans from banks and extend them at 0% IR for several decades so that the impact on cash flow would be negligible, or cancel them outright 7/

Definitely quite a lot of creative thinking going on in Paris policy circles at the moment, even if still a lot of prudence/qualifiers. 8/ end