Why don't they prioritize paying their citizens directly (Americans in this case) over providing liquidity, repo, buying bonds, and lowering interest rates? I have a BA in Economics, so hope this isn't bad economics! I ask for central banks in general, not just the US Federal Reserve.


SO we can afford this but not Medicare for All? Okay. Yeah, thanks.

Pretty basic distinction here, this action was undertaken by the Federal Reserve, which is not the same thing as the federal government. The Federal Reserve does not need to raise money from taxpayers, they have the authority to create new money for these operations.

Also, the Federal Reserve does not handle healthcare policy.

On Mar 16 2020, Federal Reserve cuts rates to zero and launches massive \$700 billion quantitative easing program. On Mar 17 2020, Fed announces move to help businesses get short-term funding in commercial paper market, and Mnuchin says Trump administration is looking to get cash to Americans 'immediately'. Why doesn't the Fed just donate that \$700B to poor private individuals?

On Friday Mar. 20 2020 morning, the Fed announced that it would be increasing the frequency of its 7-day maturity operations with the world’s major central banks: the Bank of Canada, the Bank of England, the Bank of Japan, the European Central Bank, and the Swiss National Bank. The swap lines will now be offered daily instead of weekly.

The announcement comes one day after the Fed announced \$60 billion of swap lines each with the central banks of Australia, Brazil, South Korea, Mexico, Singapore, and Sweden. It also unveiled lines of \$30 billion each with the central banks of Denmark, Norway, and New Zealand.

On May 4 2020, the US Treasury Department announced Monday it is borrowing about $3 trillion this quarter. The money is being used in large part to subsidize economic rescue efforts in the wake of the coronavirus pandemic.

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    $\begingroup$ Just a few points: a) they are thinking of doing this already (check out the latest news, I think they plan to send a cheque to Americans over the next few weeks). b) It comes down to the monetary transmission channel. Decreasing interest rates increases investment, depreciates the exchange rate and incentivizes consumption by lowering cost of borrowing. One issue with helicopter drops like you suggest is that it might incentivize the "wrong" type of non-durable, non productive consumption. $\endgroup$ – ChinG Mar 17 at 22:46
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    $\begingroup$ Keyword: "helicopter money" $\endgroup$ – user253751 Mar 18 at 14:49
  • $\begingroup$ The simple answer why they don't help the poor, is because politicians primarily respond to the demands of the rich, and the rich largely demand that politicians help the rich, not the poor. $\endgroup$ – Steve May 11 at 12:31

Central banks do not (usually) have the legal authority to do this. In contrast, governments (usually) do have the legal authority. And many do indeed use this authority to give money to citizens and often more to poorer citizens. (In fact, during the current crisis, many have done exactly that.)

(This question is a bit like asking why central banks don't issue parking tickets and other fines, or collect taxes, or run the military/charities/orphanages/anything else. It is conceivable that a country gives its central bank the power to do so. But as it so happens, most countries don't do this. Instead, they usually give such power to other authorities.)

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  • $\begingroup$ The obvious follow-up question would be: if they could do it, how would it affect the economy differently? $\endgroup$ – user253751 Jun 25 at 15:25

Most federal banks don't have the legal authority to do this, but the notion is definitely sometimes discussed, often under the informal name "helicoptering money". Former Fed Chairman Ben Bernanke discusses his thinking on the subject here, and some economists have called for this response to the current economic crisis. Rep. Maxine Waters has proposed a bill that would authorize the Fed to do roughly this idea.

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