– Friday Humor: The ECB Explains What A Ponzi Scheme Is; Awkward Silence Follows (ZeroHedge, Nov 2, 2012):
From the ECB’s Virtual Currency Schemes, aka the “Bash Bitcoin Boondoggle” (p. 27):
A Ponzi scheme is an investment fraud that involves the payment of purported returns to existing investors from funds contributed by new investors. Ponzi scheme organizers often solicit new investors by promising to invest funds in opportunities claimed to generate high returns with little or no risk. In many Ponzi schemes, the fraudsters focus on attracting new money to make promised payments to earlier-stage investors and to use for personal expenses, instead of engaging in any legitimate investment activity
Considering that this elucidation comes from the very same entity that launched the SMP, LTRO, OMT, EFSF, ESM, oh, and of course, TARGET2, and whose head said to not short the EUR as there is “no risk” whatsoever in holding said currency, one would expect that this definition is absolutely spot on…
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And as an added bonus, here is the part in which the ECB appears to be so worried about BitCoin taking over as legitimate “legal tender” from the EUR (which the ECB’s Coeure said two days ago is as “solid and longlasting as a diamond”) it dedicated an entire report to bash the recently conceived electronic currency:
In an extreme case, virtual currencies could have a substitution effect on central bank money if they become widely accepted. The increase in the use of virtual money might lead to a decrease in the use of “real” money, thereby also reducing the cash needed to conduct the transactions generated by nominal income. In this regard, a widespread substitution of central bank money by privately issued virtual currency could significantly reduce the size of central banks’ balance sheets, and thus also their ability to influence the short-term interest rates. Central banks would need to look at their existing tools to deal with this risk (for instance, trying to impose minimum reserve requirements on virtual currency schemes).
The substitution effect would also make it more difficult to measure monetary aggregates and, as a consequence, would affect the relationship between the monetary aggregates as measured and inflation, which is used to gauge risks to price stability in the medium to longer term.
Lastly, on this second aspect, when virtual money is created outside the realm of the central bank and virtual credit can be extended, this may have implications for the way interest rate decisions by the central bank are transmitted through the economy and the central bank’s control over money and credit developments could become less effective.
And while it is one thing for the Chairsatan to say gold is not money but is merely “tradition”, it is a whole new level of panic when a major central bank is forced to defend itself against an electronic currency.