Bitcoin Isn’t Any More Dangerous than the Euro
Major representatives of the European Central Bank—including ECB president Christine Lagarde—continue to warn against bitcoin. In a recent article, addressed to the inflation-adverse German audience, the ECB representative Klaus Masuch together with the former ECB chief economist Otmar Issing has stressed five risks of bitcoin: a lack of intrinsic value, risks to financial market stability, the use in financing organized crime, high energy consumption, and the danger that taxpayers are held liable for financial risks. It is good that the ECB wants to protect us against possible risks, but a comparison between bitcoin and the euro in the five points mentioned should be allowed.
First, the authors write that bitcoin has no intrinsic value, i.e., no direct use value as gold does, for example (see also Thiele 2017). This is true, but some value arises from the fact that bitcoin makes electronic transactions possible without a bank account (peer to peer). The euro also has no intrinsic value; at best it has value in the form of the burning value of the notes and the metal value of the coins. Euro credit money has been backed by the investment projects it has financed, but the persistently loose monetary policy of the ECB is increasingly zombifying euro area enterprises. More and more private deposits at the commercial banks are backed by the commercial banks’ deposits at the central bank instead of credit-financed investment.
Bitcoin per Euro
Thus, the trust in the two currencies depends on how credible they are, with this question being strongly linked to the restraints on the supply of the currencies. The number of bitcoins is credibly limited to a maximum of 21 million. Bitcoin miners have to do substantial work to create bitcoin (proof of work). The necessary efforts increase with the number of bitcoins created.
The supply of euros was intended to be limited by the ECB’s objective of price stability as outlined in article 127 of the Treaty on the Functioning of the European Union (TFEU) as well as by the prohibition of government financing by the central bank (article 123 of the TFEU). But these rules seem to b
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