With the Covid crisis (nearly) behind us, there has been a strong focus by governments worldwide on stimulating consumption in order to revive the economy as quickly as possible.

This is needed in order to reduce public debts, which have exploded during the pandemic. This revival has however been so intensive, that it has led now to historically high inflation rates, showing an overheating of the economy.
Nonetheless governments are still looking to stimulate the economy, i.e. with consumer’s buying power under pressure (especially due to the high inflation rates), no government dares to increase taxes and every government is looking to help those most severely
impacted by the expanding inflation and the post-ripple effects of the pandemic.

An instrument which is often brought to the table by politicians and economists is so-called “helicopter money“. This is a term which is used today quite broadly for any monetary stimulus where cash is directly distributed to the public.
Helicopter money in its purest definition refers however only when such a stimulus is financed directly by an increase in the money supply (i.e. central bank printing additional money), but today it has become a metaphor for any way where a government pumps
money in the economy by directly giving money to households.
Helicopter money should also not be confused with quantitative easing. This is also a stimulus via increasing the money supply, but this additional money is used by the central bank to buy securities (usually government bonds), meaning it increases
the balance sheet of the Central Bank. This contrary to helicopter money, where the money is given away by the Central Bank to the public. The objective is however the same, i.e. by purchasing sovereign bonds, the Central Banks push interest rates down, encouraging
banks to lend more money to households and companies (although in reality this desired outcome is not always achieved – cfr. “liquidity trap”), thus stimulating economic growth and consumption.

Obviously the biggest criticism on helicopter money is that it leads to hyperinflation and currency devaluation. Not surprisingly as all real examples of the use of helicopter money, like in Argentina or Zimbabwe or in the 1920s in Germany,
have been a disaster, so governments are very reluctant to use this means.

Smaller experiments, where governments hand out money to the public are however very common. Contrary to pure helicopter money, those are not paid by Central Banks, but directly by governments (often financed via public debt). E.g. in the US over 85 per
cent of American households received up to 3 Covid-19 relief payments in the years 2020 and 2021 for a total amount of approximately $3.500 per adult.

But also on those smaller experiments, there is a lot of criticism as it would lead to budgetary deficits and there is no real guarantee that the money will actually be used/consumed by the public (and not
saved or used abroad).

For these money distributions, governments have a whole range of possible mechanisms, i.e.

• Via general tax rate reductions

• Via subsidies or targeted tax reductions (e.g. lower VAT, deductibility of certain expenses…​). E.g. reduced VAT levels on food, horeca or books, rent subsidies to improve housing situation, energy subsidies…​ This can also be in the form
  of specific employee extra-legal advantages, which are fiscally interesting for employers (e.g. meal vouchers, the consumption voucher in Belgium as a Covid-relaunch measure, bike leasing, company car…​), thus indirectly given to households

• Via direct investments, like spending more money on infrastructure works

• Via increases in salaries paid by the governments (of civil servants) or by increasing benefits, like pensions, unemployment benefits, sickness benefits…​

• Via direct contributions to households. Cfr. ongoing discussions about Universal-Basic Income (UBI) or about giving a lump sum of money to everyone at 25

• …​

The main goal of every action should always be to maximize the society benefit of any economic stimulus. This is done by:

• Targeting the right beneficiary audience, i.e. those needing and/or deserving it the most. Although universality and unconditionality, like e.g. in the case of Universal-basic Income, can also be a powerful means to get necessary buy-in
  of all citizens.

• Ensuring that the provided money is used in the best possible way, i.e. used for good causes (like healthy food, ecological improvements…​)

• Ensuring that a maximum of the money is consumed in a short time frame, thus maximizing the economic stimulus

• Ensuring that a maximum of the money flows back to the government in the form of different taxes (like VAT, company taxes, personal taxes…​). This means avoiding as much as possible that the money is saved, spent abroad or spent
  in an unofficial (black) circuit.

• Limiting as much as possible the bureaucratic impact (which not only increases the cost, but often results in people needing it the most, not being able to profit from the incentive) and the risk of fraud

This is best achieved by targeted financial instruments, often managed via vouchers. These payments instruments are often exempted from the definition of electronic money as they:

• Can only be used for a specific purpose (e.g. specific product or set of products)

• Can only be used in a closed network of merchants, i.e. every merchant needs to sign a contract to receive the voucher

• Can only be used in a specific geographic area (this can be a city, but also a shopping mall or limited to the country)

• Often have a specific law, where specific tax incentives and limitations (like limited amounts per person) are defined by the government

• Usually have an expiration date, in order to force consumption in a relatively short time period (after expiration date, the vouchers lose their value).

Examples are gift vouchers for a specific shop, meal vouchers, training vouchers, service vouchers, tourism vouchers…​

Unfortunately the market of vouchers is still a very fragmented marketand is considerably less mature in its digitalisation compared to traditional money.
For example, many vouchers are still paper based, which poses a lot of issues:

• Very costly for all involved parties, as

  • The issuer needs to print and deliver them to the beneficiary

  • The merchant has to collect and send them back to the issuer for reimbursement (which takes time and costs money)

• Very prone to theft and fraud (e.g. reproduced paper vouchers)

• The voucher have a specific unit value, which means there is a minimum transaction amount for using vouchers and not divisible

• Not very ecological due to use of paper

• Hygienical concerns, due to the exchange of paper

• Not very efficient (time-consuming) as a payment means when standing at the cashier

• Nominative character of vouchers cannot be guaranteed, meaning an unofficial (black) market of vouchers is created, which should be avoided

• Not possible to use online

As a result, paper vouchers are more and more replaced by a digital equivalent, which is usually a private-network (three-corner) card (EMV, magnetic stripe or card with bar/QR code) which can be read by a terminal or scanner. At that moment,
a call will be made to the voucher issuer to see if the card is still valid and if there are sufficient vouchers to execute the payment. If so, the voucher balance linked to the card will be debited for the transaction amount.
A lot of setups are possible, i.e. the card can be a one-shot card or rechargeable or even a virtual card loaded in a Google Pay or Apple Pay wallet, but also mixed solutions between paper and digital exist, e.g. paper vouchers which have a
unique QR code on them, giving a (temporary) physical representation of a digital voucher. This way it is still possible to have a digital solution on paper, which is especially interesting if involved parties are not so digital savvy.

But such digital vouchers are still far from a good user experience for all concerned parties (voucher buyer, voucher beneficiary & merchant accepting the voucher), as

• An agreement (contract) needs to be signed between the merchant and the voucher issuer

• The user needs to know where to consume the vouchers and needs to think of using the right voucher when he is at the cashier

• Difficult to know what can be bought with which voucher

• Not aggregated with the rest of your finances

• A digital solution for a specific niche voucher is often too costly

The sector is therefore advancing even further, with

• The use of open-loop (4-corner) cards (based on e.g. VISA or MasterCard), potentially even in combination with a solution (e.g. Fuze, Curve, Stratos, Wallet Card…​) which allows to aggregate multiple debit/credit cards in 1 card

• The integration in P2P mobile payment apps (like the integration of meal vouchers in Payconiq in Belgium),

• The integration of voucher balances and transaction history in banking apps (just like account aggregation via PSD2, e.g. integration of Monizze vouchers in the KBC and Belfius apps)

• The usage of a zero-corner model, where consumers pay with their standard debit or credit card and are then reimbursed with the money of a voucher. This can be done via OCR analysis of a purchase ticket, but also via automatic account scanning
  via PSD2 (e.g. Swave in Belgium automatically reimbursing your parking ticket in Kortrijk when a shopping transaction is identified).

Nonetheless even those innovations, still introduce quite some complexity (especially when you have a lot of vouchers from different issuers) and friction, compared to standard cash. In the future when we evolve towards digital
coins, which can be associated with smart contracts, the specific limitations of vouchers requested by governments and/or merchants, could be directly entangled with the money itself. When this will be the case, vouchers would just
be cash with a specific set of rules attached to them. If this digital money are furthermore CBDCs(see my blog “CBDC – The new kid on the block” – https://bankloch.blogspot.com/2021/05/cbdc-new-kid-on-block.html), “Helicopter
Money 2.0” could become a reality, as Central Banks could issue directly the money to households (without the involvement of governments and/or banks) and could associate all required rules (for targeted consumption) to them (e.g. expiration date,
where and for what they can be used, the nominative nature…​). Instead of talking about Central Bank “bazookas“, we could then start talking about Central Bank “precision bombing“.

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