Helicopter money is a proposed monetary policy for inflation targeting, sometimes suggested as an alternative to quantitative easing (QE) when the economy is in a liquidity trap (when interest rates near zero and the economy remains in recession). Although the original idea of helicopter money describes central banks making payments directly to individuals, economists have used the term "helicopter money" to refer to a wide range of different policy ideas, including the "permanent" monetization of budget deficits – with the additional element of attempting to shock beliefs about future inflation or nominal GDP growth, in order to change expectations. A second set of policies, closer to the original description of helicopter money, and more innovative in the context of monetary history, involves the central bank making direct transfers to the private sector financed with base money, without the direct involvement of fiscal authorities. This has also been called a citizens' dividend or a distribution of future seigniorage.

The name "helicopter money" was first coined by Milton Friedman in 1969, when he wrote a parable about dropping money from a helicopter to illustrate the effects of monetary expansion. The concept was revived by economists as a monetary policy proposal in the early 2000s following Japan's Lost Decade. In November 2002, Ben Bernanke, then Federal Reserve Board governor, and later chairman suggested that helicopter money could always be used to prevent deflation.

A monetary policy that involves helicopter money requires that central banks operate with negative equity. This touches on an old question in economics on whether money should always be fully backed by segregated assets (gold, loans) or whether lower levels of asset backing are warranted to counter deflationary pressures. This question is again relevant due to the negative side effects of low interest rate policies as well as the development of central bank digital currency.

Although very similar concepts have been previously defended by various people including Major Douglas and the Social Credit Movement, Nobel winning economist Milton Friedman is known to be the one who coined the term 'helicopter money' in the now famous paper "The Optimum Quantity of Money" (1969), where he included the following parable:

Let us suppose now that one day a helicopter flies over this community and drops an additional $1,000 in bills from the sky, which is, of course, hastily collected by members of the community. Let us suppose further that everyone is convinced that this is a unique event which will never be repeated.

Originally used by Friedman to illustrate the effects of monetary policy on inflation and the costs of holding money, rather than an actual policy proposal, the concept has since then been increasingly discussed by economists as a serious alternative to monetary policy instruments such as quantitative easing. According to its proponents, helicopter money would be a more efficient way to increase aggregate demand, especially in a situation of liquidity trap, when central banks have reached the so-called "zero lower bound".

Friedman himself refers to financing transfer payments with base money as evidence that monetary policy still has power when conventional policies have failed, in his discussion of the Pigou effect, in his 1968 AER Presidential address. Specifically, Friedman argues that "[the] revival of belief in the potency of monetary policy ... was strongly fostered among economists by the theoretical developments initiated by Haberler but named for Pigou that pointed out a channel – namely changes in wealth – whereby changes in the real quantity of money can affect aggregate demand even if they do not alter interest rates". Friedman is clear that money must be produced "in other ways" than open-market operations, which – like QE – involve "simply substituting money for other assets without changing total wealth". Friedman references a paper by Gottfried Haberler written in 1952, where Haberler says: "Suppose the quantity of money is increased by tax reductions or government transfer payments, and the resulting deficit is financed by borrowing from the central bank or simply printing money."

It is noteworthy in light of more recent debates over the separation between monetary and fiscal policy, that Friedman viewed these policies as evidence of the potency of monetary policy. In the same AER address, he is highly critical of the timeliness and efficacy of fiscal measures to stabilize demand.^{[citation needed]}