Inflation is known as the most painful tax on households, especially the poorest, and in Europe, the year-over-year inflation rate of 5.1% last January was one-tenth of a percent higher than the increase observed in December. This represents the highest price increase in the history of the Eurozone, and Bitcoin (BTC) could be a substitute for dealing with the high cost of living.

To combat inflation, the European Central Bank (ECB) believes that the best decision is to stick to its plan to keep interest rates unchanged. In doing so, it ignored critics who argued that financial coverage should be tightened in response to the rapid rise in the prices of goods and services in the eurozone.

The European Central Bank said today that its Governing Council "confirmed the decision taken at the Financial Hedge Conference last December". As a result, it will maintain its policy of easing support for the economy and tolerating record inflation, leaving interest rates unchanged, as reported in the regional press.

The agency added that its deposit rate will remain at a record low of minus 0.5%, the central bank's reference refinancing rate at 0% and the rate on its marginal credit instruments at 0.25%.

The bank also said it will stick to its plan to end its pandemic emergency bond-buying program in March, although it continues to support the economy by continuing the old bond-buying program.

With these measures in place, bank officials believe inflation will subside this year, although economists disagree and believe the eurozone economy is ready to accept higher interest rates.

European Central Bank President Christine Lagarde (Christine Lagarde) said that it is energy prices and supply-side constraints that are driving inflation in the eurozone, not the invisible printing of money.

20220204-18.jpg.webp The purchasing power of eurozone households is under threat, especially for those unable to invest in risky assets that offer high returns. Source: YouTube Europe News

What is the effect of raising or lowering interest rates on inflation?

One of the most common tools used by central banks to control inflation is to raise interest rates. In fact, the U.S. Federal Reserve (Fed) plans to rise in March, as a measure to reduce the accelerating losses in the value of the currency, which closed in December at the highest level in almost 40 years, as reported by CriptoNoticias.

When interest rates rise, credit becomes more expensive, affecting companies that need to borrow money for investments and people who need loans to buy homes, cars or unforeseen expenses.

However, by keeping interest rates low, the ECB seems to be encouraging people to borrow rather than encourage savings.

If inflation exceeds interest rates, currencies depreciate, meaning that the money people have and earn is not as tight to pay for everyday goods and services.

Bitcoin Encourages Savings: An Alternative to Fighting Inflation

As in the United States, central banks around the world are creating money from scratch at an unprecedented rate. The measure was a response to the many tools used by governments to rescue their economies during the coronavirus pandemic. However, the inorganic emissions of money led to a surplus of cash, which lost its value according to the laws of supply and demand.

In this context, Bitcoin becomes very valuable because it aims to appreciate in value over time. Due to its fixed supply of 21 million coins, it is a scarce asset and in this sense it is a substitute for savings because it preserves its value and increases its value.

20220204-26.png.webp For European residents, bitcoin could be a good hedge against inflation. Source: freepik.

In Venezuela, where the population is facing one of the highest inflation rates in the world, Bitcoin has become a protective alternative. This is evidenced by a study by economist Ángel García Banchs, which proves that the pioneering cryptocurrency has been the best protection for Venezuelans against the high cost of living for the past two years.

As the Venezuelans have done, with Bitcoin, residents of Spain and 18 other countries in the Eurozone can begin to increase their wealth instead of being forced into debt or increasing their holdings of dollars or euros that melt like cubes. The idea of ice is to put a down payment on a house. Bitcoin encourages early savings and avoids debt, which is the exact opposite of the model established by the traditional financial system.