ECB Chief Economist: “As a Central Bank, We can Create Money to Buy Assets, This is Exactly Why Bitcoin was Invented”


In an hour-long question and answer session on Tuesday, the chief economist at European Central Bank (ECB), Peter Praet defended its sub-zero policy rate, calling it a powerful tool that has more positive than negative effects.

“Negative rates continue to be a powerful tool to reach our price stability objective,” Praet said on Twitter. “The side effects are outweighed by the positive effects on financing conditions for firms and households.”

Last week, the ECB has pushed back the timing of its first hike to next year while unveiling plans to grant more multi-year loans to banks. Praet said, with its latest policy moves, ECB is just trying to “maintain” its level of monetary stimulus.

When asked if the latest measures are a u-turn, Praet said,

“They are a response to the downgrade of the economic outlook. Our latest decisions aim to maintain the accommodative policy stance necessary to reach our objective,” he added.

This Q&A also touched upon the Modern Monetary Theory (MMT) on which Praet tweeted his disapproval with,

“The general idea that government debt can be financed by central banks is a dangerous proposition. In the past, this has resulted in hyperinflation and economic turmoil. That’s why central banks are independent.”

The headline argument of MMT is that countries that issue bonds in their own currencies don’t need to worried about overspending because they can always print money to pay off their debt. The advocates of MMT point towards the low inflation in the advanced economies as evidence that more spending can be handled as opposed to what is generally assumed.

Euro region doesn’t fit into this model quite neatly because here one central bank is conducting the monetary policy of 19 countries.

Recently, Jerome Powell, the chairman of the US Federal Reserve, called this concept “just wrong.” Meanwhile, Prate’s remark on MMT caught the attention of Stephanie Kelton, a professor of public policy and economics at Stony Brook University in New York and a prominent MMT enthusiast who said,

“An interesting reply from a central bank that surely ought to understand monetary operations well enough to avoid this kind of embarrassing commentary.”

Not just from Kelton, Praete’s remark also garnered a response from the crypto community as @Alec Ziupsnys said, “Buy Bitcoin, Bye Banks.”

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