Cpt. Charisma on Nostr: A speculative attack against the E.U. and ECB: The concept of a speculative currency ...

A speculative attack against the E.U. and ECB:

The concept of a speculative currency attack has been covered exhaustively elsewhere. The short version is that anyone who can borrow or print in a weak currency can make a profit by doing so and using the procedes to buy a strong currency.

Due to a 'quirk' of how the E.U. monetary union works a member country could do speculatively attack the Euro at the expense of the rest of the nations in the E.U. Usually, when a country runs a defficit, they have to essentially print money or borrow to cover it. If their deficit gets too high, their currency will lose value against other coutries' currencies. The E.U. is different. They all share the Euro as their currency, managed by the European Central Bank (ECB). However, each member country has it's own central bank. All of these central banks are allowed to print the Euro. Transferrs within the E.U. are handled by the ECB. The ECB keeps separate accounts for each member country's transferrs to the rest of the EU. All member countries are allowed to run deficits on this account, but there is no mechanism to limit the growth of these accounts. This gives any E.U. member the ability to run infinate defficits with the rest of the E.U.

A member country which wanted to do a speculative attack on the Euro could buy Bitcoin from exchanges in other member countries and run their ECB deficit up. With no mechanism for forcing settlement, this country would effective get their Bitcoin for free. It would lower the value of the Euro, but the damage would be spread accross all member countries. If they were careful about it, the rest of Europe probably wouldn't catch on until it was too late.


Note: I'm probably getting the terminology wrong, but I believe the general mechanism is correct. It has been a while since I have looked at the inner workings of the Euro.