Francois Villeroy de Galhau, who is also policymaker at the European Central Bank, has warned the crisis could risk price stability. This comes as more than 10,000 people have died from COVID-19 in France and more than 80,000 have tested positive. In a speech yesterday, the finance chief said a “central bank would create money on a lasting basis to finance businesses directly”.
In times of emergency, such as during wars, central banks have handed banknotes directly to governments, in a policy known as “helicopter money”.
He said: “If monetary financing of public authorities is prohibited by the European treaties, it would, for example, be possible, according to these theories, to imagine that the central bank would create money on a lasting basis to finance businesses directly.
“In principle, nothing is ruled out in an intellectual debate. However, only a major risk to price stability from the bottom up could lead to such decisions being considered.”
The former chief of the ECB Mario Draghi has called for corporate debt cancellations.
France’s Minister of the Economy and Finance, Bruno Le Maire, has warned his citizens that a recession is looming after this pandemic.
France’s central bank said that they believed the economy in France reduced by six per cent in the first three months of this year because of the coronavirus outbreak.
SEE MORE: France hits out at the Dutch over failed eurozone rescue talks
Gilles Moec, chief economist at French insurer Axa, said: “I think allowing central banks to ‘vacuum out’ the emergency loans granted to SMEs and de facto extinguish them would be an elegant solution since it would circumvent the prohibition of monetary funding of governments.”
Last month the European Central Bank launched an emergency £700 billion to soften the impact of the pandemic.
ECB boss Christine Lagarde tweeted: “Extraordinary times require extraordinary action.
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“There are no limits to our commitment to the euro. We are determined to use the full potential of our tools, within our mandate.”
France has been under lockdown since March 17 and the government has warned they could extend beyond April 15.
The French government launched an economic rescue package last month which focussed on deferred tax payments and loans to troubled companies.
However, creating money like this can lead to hyperinflation.
One of the worst examples of hyperinflation was in the period following World War One when prices in Germany would double every few days.
Zimbabwe also suffered from hyperinflation in 2007.
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