Desperate times require desperate measures. These may include monetary financing of governments or the provision of funds to citizens by the central bank through so-called helicopter money.

So, what does monetary financing really mean? Does it make sense at all? How dangerous is it? How and by whom should it be governed? These questions require sober answers, not hysteria about the onset of hyperinflation.

Recently, the Governor of the Central Bank of England (BoE), Andrew Bailey, insisted that the bank does not – and will not participate – in “monetary financing” of the government. However, just a few days later, the British Treasury announced that the BoE would finance its swelling operations directly. The Treasury also announced that this should be “temporary and short-term”, with the decision ultimately up to it.

The Boe can still say that this is not a “permanent expansion of its balance sheet to finance the government” condemned by Andrew Bailey. However, the bank, he claims, “does not retain full control over how and when the expansion will be reversed”. The control is with the Ministry of Finance.

Much of this discussion consists of intellectual equilibristics. One of them is whether direct monetary financing is fiscal or monetary policy. The economic answer is that it is both. If one focuses on which institution is responsible, then it can be both fiscal and monetary. Another balancing act unfolds around the complex word “perpetual”, which is about intentions for politicians. If they do not intend to be permanent, then this is not monetary financing. In this way, the Central Bank of Japan (BoJ) claims that it does not practice monetary financing, despite the huge scale of its government bond investments.

There is no use for sweet talk. The alleged temporary purchases of government bonds, or the direct monetary financing now imposed by the UK Treasury, may become permanent. In fact, due to the expansion of the central bank’s balance sheet over the last 12 years, they are likely to be so. This is a disturbing truth that we dare not speak. However, irreversible monetary financing could eventually be reversed.

The real question is whether a policy of large-scale monetary expansion in support of government policies can sometimes make sense. The answer is yes. In extraordinary circumstances, such as times of war, deep depression, or pandemics, it is the job of the central bank to support the state’s overriding need to protect people’s lives and livelihoods. Only the craziest libertarian would disagree. As a body of the state, the central bank should help. Its independence, although usually desired, is a means to an end, not an end in itself. Even price stability is not always the highest value. Other things matter.

This does not mean that monetary financing does not present any dangers. Unchecked, it can lead to irresponsible spending, hidden taxation in the form of high inflation due to excessive base money creation, or even hyperinflation. Tackling these dangers can force central banks to limit bank lending through regulations, including higher reserve requirements. This can stifle private sector development.

But in a situation like today’s direct monetary financing, it can help the government do whatever it takes to keep people and the economy afloat during the crisis. The alternative to debt financing would reduce the desired expansionary effects, in part because it would be expected to end with another painful round of savings.

The question is not whether deliberate increases in central bank money can be deliberately justified. They can. Rather, the question is how to manage them, institutionally and technically.

Israeli economist Eran Yashiv argues that the institutional solution is to create the financial structure of a time-limited program for irrevocably monetary financing of Covid-19 initiatives to support people’s health and well-being. Its steering committee may include representatives of the Treasury, the central bank, and external experts. If such regulation makes the policy more visibly controlled, this idea makes sense.

However, there are also questions about how to implement the policy. Suppose there is indeed a very large increase in the monetary base. Let’s also assume that commercial banks want to drastically expand lending, in part because they find themselves with what they consider “redundant reserves”. The central bank may then need to raise interest rates by more than it would otherwise. It may also have to raise the interest rate it pays on reserves, which is expensive.

Alternatively, it may be necessary to tax banks by imposing higher requirements on non-yielding reserves. It may feel obligated to unleash inflation. Or he may just have to pick up excess reserves, as usual, through open market operations.

The use of, generally speaking, irreversible monetary financing is just another policy tool. There are pros and cons to the circumstances. This is neither the broad path to hyperinflation nor the panacea for today’s shrinking real economy. At a time when government deficits are exploding in the midst of a huge crisis, this is an obvious mechanism. Use it. Design ways to manage it. First of all, make sure we go through this. This is our main goal.