The European Central Bank (ECB) has changed its strategy and adjusted its inflation target. How much science is really in our money and whether it is possible to determine which currency – Bitcoin or Euro – is better.
Last Thursday, the European Central Bank threw its inflation target of “close to but below two percent” overboard. After almost 20 years it is now said that two percent is no longer an upper limit for the euro zone’s money. In your Announcement the central bank admits that overshooting the supposed limit is tolerated more than ever. Given US inflation rates of over five percent and similar developments in the euro area – the rate of inflation in Germany was 2.3 percent in June – an almost overdue adjustment to the central bank statues.
In the end, it’s not about inflation
It is not surprising that the fear of inflation is increasing among consumers and companies. Despite the ultra-loose monetary policy, there does not have to be real economic inflation that goes beyond the corona catch-up effects. The past has taught that the expansion of the money supply alone does not have to lead to rising prices for goods and services.
But even if the current rise in inflation is only a temporary phenomenon, that does not mean that everything is in order with monetary policy. At the end of the day, it’s all about trust, not an inflation rate of under or just over two percent. After all, massive inflation, even hyperinflation, is always the result of a loss of confidence in the currency. As long as this is available in large parts of the population, even higher inflation rates cannot shake the currency. In order to strengthen this trust, central banks are masters of strategic communication.
Money: not science, but politics
Central bank policy is not a science, it is politics. Money is a social construct and not a law of nature. Nevertheless, one or the other may get the impression that the Frankfurt Towers are holding the reins of money in their hands according to virtually immovable principles and analyzes. Outwardly, this should give the impression that central banks would actually be able to precisely control monetary stability – see the wording under, however, almost two percent inflation. The precision of the formulations as in the example given above suggests causal laws and intersubjective clarity in the actions of the central banks.
The desired result: to create trust in the monetary system. The alleged objectification of actions is intended to label errors as scientific exceptions and not human errors.
However, this is precisely what is nonsense. Our monetary and financial system is deeply chaotic and cannot be steered to the extent that people like to dictate. In contrast to physics or chemistry, the calculations and models are based on ideologically motivated assumptions. Whether you aim for an inflation below two percent or not has something to do with your own convictions, because the supposedly intersubjective knowledge. Also not to be underestimated at this point is the political pressure that also weighs on the formally independent western central banks.
If there are no political reforms by the states and these get into financial difficulties, then the central bank is the last resort. Especially since they not only help states with liquidity, but at the same time have to demonstrate maximum sovereignty and determination to the financial market. As a result, central bank decisions have less to do with objective science than with market psychology, politics and ideology.
Money = ideology
The derivation may seem trivial, but it is crucial to classify the arguments for or against Bitcoin. When central banks criticize Bitcoin, as happened often enough in the last few days, then that’s just ideology and not well-founded science. But it is also ideology when a Bitcoin enthusiast claims that Bitcoin is the best money in the world.
The excessive self-overestimation of the people, who supposedly know what the best political direction is, is also reflected in the question of our monetary system. Only there is no intersubjectively best currency, just as there is no intersubjectively best political orientation. So neither Christine Lagarde nor the libertarian Bitcoin enthusiast are right when they claim to know how the objectively best money must be structured. Dogmatic fiat money and bitcoin critics alike lack sufficient tolerance.
Can there be a right to Bitcoin (BTC)?
From this, of course, the maxim can be formulated that, as in politics and society, one should stand up for equal opportunities and diversity when it comes to money. Under the premise that the euro, US dollar, etc. are merely expressions of a political preference and of the prevailing power structures, cryptocurrencies are nothing more than a political minority or a small splinter party in a political system organized as a one-party state. A crypto ban would therefore be a highly undemocratic matter as long as the underlying blockchain protocol does not violate the Basic Law. After all, no party that adheres to the Basic Law is banned in a democracy.
Nobody has to find Bitcoin good, but tolerate it very well if he or she advocates a liberal attitude. Accordingly, it would be welcomed if the central banks’ changes in strategy and their criticism of Bitcoin were presented as political and not as highly scientific decisions. In short: it’s about nothing less than disenchanting the central banks.
Modern Monetary Theory (MMT) needs reinsurance
Bitcoin won’t be able to solve all the fiscal problems. But Bitcoin does offer a counterweight to the dominant standard. A kind of opposition that can make an important contribution to democratic discourse. The minimalist approach, the apolitical nature and above all the scarcity of Bitcoin can trigger additional competition, which in the long term leads to increased economic welfare. In particular, due to the current experimentation with the Modern Monetary Theory (MMT) on the part of the central banks, it is desirable if Bitcoin offers a monetary safety net.