A new European Central Bank communique titled “[O]n revisions to the Union crisis management framework”, provides a startling glimpse into how the Eurozone will proceed, in the event of another financial crisis. The paper advocates scrapping the government deposit guarantee and implementing Greek style capital controls in the event it deems a “bail-in” necessary.
ECB: Deposit Guarantees Won’t Stop a Bank Run
First noted by GoldCore.com, the 58 page document outlines the potential removal of the banking deposit guarantee, whereby the government effectively insures depositors’ money in the case of a bank failure or systemic crisis.
The report states it is the “opinion of the European Central Bank” that deposit guarantees are no longer needed, because even in the event of a failing bank “a substantial number of covered depositors might still withdraw their funds immediately in order to ensure uninterrupted access or because they have no faith in the guarantee scheme.”
Essentially, this says the general public have smartened up to the threats posed by the much maligned “bail-in”, and a bank run would still occur because citizens do not trust the government to look after their best interests.
And indeed they haven’t. After seeing how Greece was affected in 2015, TIME noted that due to capital controls “the daily lives of citizens and businesses come screeching to a halt”. There is little doubt that a bank run would occur at record speeds if another banking failure was imminent.
Government Will Decide What’s Best – Trust Us
Implementing another”bail-in” remains at the forefront of the ECB’s mind when it comes to crisis management — because almost inevitably, another large scale crisis will occur. In that case, the ECB paper attempts to sugar-coat a glaring crack in their process by saying “depositors should have access to an appropriate amount of their covered deposits to cover the cost of living within five working days of a request.”
This would mean access to your own money would be restricted, but because governments are such benevolent institutions who know what is best for you, the “appropriate amount” seems likely to be be determined by the ECB itself.
This drives home one of the central criticisms of faith-based credit systems like fiat money: a note of currency is only a promise to pay, not a guarantee. As such, similar to bitcoin and gold, the money held for you in the bank (or exchange or depository) is not actually yours if you rely on a central authority to receive it.
Can Bitcoin Defend Citizens Against a Bank Bail-In?
Greece learned this lesson the hard way, and although that crisis was perhaps only tangentially related to Bitcoin, it reinforced benefits of holding assets, like bitcoin or gold, outside of government control.
Greek citizens did come up with inventive methods to maintain their wealth, such as purchasing cars. But the physical limitations of transporting tangible goods across borders soon became apparent. It was widely noted during the BTC bear market of 2015 — when accusations of scams and Ponzi schemes were abundant — that bitcoin would be the perfect vehicle for maintaining wealth during a bail-in.
It becomes an interesting thought exercise to map how things could play out. Would money flow heavily into bitcoin before the crisis hit, acting as a canary in the proverbial coal mine? Would it begin in surrounding countries as they became jittery about their own situation, or would the use of bitcoin and other cryptocurrencies allow economies to continue operating whilst their banking debt and liquidity issues were repaired?
From there on, it becomes a question of: how does the ECB, or any other central authority, adapt to the use of decentralized cryptocurrencies? For Greek citizens in 2015, bitcoin was not yet mature enough.
But a few short years later, amidst an unprecedented boom in cryptocurrency, a much larger number of the European population know about the fundamental benefits of bitcoin — and they won’t be afraid to use it.
Is bitcoin ever a good place to park your wealth in a crisis? Let’s hear your thoughts.
Images via Pixabay, Wikimedia Commons