Draghi: "Bitcoin is risky, but a euro is still a euro"

Virtual currencies such as the Bitcoin are very risky investments, because their value fluctuates greatly and because there is no central bank behind them. ECB President Mario Draghi said this during a 'Youth Dialogue' meeting, where he answered questions from young people. With the statement 'a euro will always be a euro', the central banker suggested that the European currency offers stability.

"Virtual currencies, Bitcoins and the like, are not really currency. They are possessions. A euro is a euro, today, tomorrow, in a month's time. It's always a euro. And the ECB stands behind the euro. Who is behind virtual coins? So they are very, very risky assets, the value of which fluctuates violently back and forth. At the moment, they are not significant enough in their entity that they can influence our economies.

We tend to think of them as speculative investments. Very risky, but the task of monitoring and regulating is not something that pertains to the central bank. It's more something that's the responsibility of consumer protection, where you want to make sure that the people who buy {{p12}s know what they're doing and are aware of the risk they're running."

Watch again: Mario Draghi answers a student's question on cryptocurrencies #ECBYouthDialogue #GenerationEuro pic.twitter.com/5VmHr3sxNw

— European Central Bank (@ecb) May 8, 2019

'A euro remains a euro'

Draghi's statements do not come as a surprise, as he already spoke out in a similar way about the virtual currency last year. Nevertheless, there are a few things to criticize about Draghi's certainty that a euro will always remain a euro. It is true that the euro as a unit of account has remained the same over the years, but the same cannot be said of purchasing power. Due to inflation, a euro no longer has as much value today as it did ten years ago.

It is true that the value of the euro is relatively stable in the short and medium term, but not in the long term. This contradiction is also reflected in the ECB's actions. The central bank's mandate is to aim for price stability, while monetary policy is aimed at approaching 2% inflation over the medium term. This policy allows the central bank to guarantee the nominal value of a euro, but not the actual purchasing power.

If we look at the purchasing power of currencies over the long term, we see that they all lose value against gold. The following chart from a report by the World Gold Council shows how all unbacked currencies lose value against the precious metal in the longer term. If Draghi says that a euro will always be a euro, think about the graph below.

All currencies lose purchasing power against gold (Source: World Gold Council)