À chaque crise suffit sa dette

This article discusses the impact of radical monetary policies (debt cancellation or helicopter money) on central banks capital, independence and ability to fulfill their mandate. From a few empirical exercises, we show that a public debt cancellation held by the Eurosystem, even on a small scale, would take a long time to be cushioned by the usual profits of the Eurosystem, even if a deterioration of the central bank capital does not mechanically translate into inflation, as long as the ability of the monetary authority to destroy money remains. It is thus possible to imagine a central bank issuing a fraction of its reserves in the form of helicopter money and the rest in the form of conventional instruments. However, the political cost of such an operation appears to be currently high in the euro zone.