An Open Letter to the European Central Bank
Who is the Emperor?
Dear European Central Bank,
We refer to the recent blog post for the ECB (‘The Naked Emperor's New Clothes’, by the same two authors who memorably wrote a piece called 'Bitcoin's Last Stand' at the very bottom of the last bear market. Bitcoin is of course up roughly 250% since they wrote this).
It's intriguing to see the "emperor with no clothes" analogy applied to Bitcoin, especially because, over the past decade, the euro has depreciated by over 99% against Bitcoin. By using the phrase, you inadvertently accept that Bitcoin is the emperor of money, nude or not: .
It is no accident that the 2008 crisis birthed Bitcoin. Bitcoin represents a return to the hard money system that used to exist up until 1914 when Central Banks and Governments embarked on a financial experiment of gradually removing gold backing and leaving only a fig leaf, a figment of imagination called trust.
You never read the fairytale or wouldn’t have used it as an analogy. So let me enlighten you. "The Emperor's New Clothes" originates from a fairy tale by Hans Christian Andersen, published in 1837. The story revolves around two weavers who promise an emperor a new suit of clothes invisible to those unfit for their positions, stupid or incompetent. When the weavers "present" the suit to the emperor, he pretends to see it to avoid appearing unfit for his position. His ministers do the same. When the emperor parades before his subjects in his new "clothes," a child cries, "But he isn't wearing anything at all!" This reveals that everyone had been pretending to see the clothes out of fear of being seen as unworthy or stupid, even though they could not see them.
The tale critiques vanity, pride, and the reluctance to speak up against collective denial or foolishness. The phrase "The Emperor has no clothes" has since become a popular metaphor for situations where a widely accepted truth is, in fact, a deceit, and it takes someone speaking out for everyone to acknowledge the reality.
A more apt use of the story would be for the euro and other fiat currencies. Fiat is the Latin word loosely translated as “trust me guv”, for those who don't know.
In this narrative, the euro (and, by extension, all other fiat currencies) can be seen as the emperor, adorned in "clothes", representing its perceived value and trustworthiness in the eyes of the public and the international community. The "weavers" in this scenario could be likened to the central banks and financial institutions that promise the currency holds value and stability despite not being backed by a tangible asset.
The public, including governments, businesses, and individuals, are the emperor's subjects, who, either out of trust or lack of alternative, agree that the currency has value. This collective belief in the euro's value enables it to function as a medium of exchange, unit of account, and store of value despite its lack of physical backing.
The metaphor becomes particularly poignant in financial crises or when the currency faces significant inflationary pressures. In such situations, the "child" in Andersen's tale symbolises those voices that question the sustainability and wisdom of a monetary system based entirely on trust me guv. The "clothes" (or the supposed stability and value of the euro) are not as robust as you think. Your system is based on collective belief rather than intrinsic value. It will fail.
The next financial crisis will be even worse than 2008. But this time, there is an alternative. Bitcoin.
Yours sincerely,
Bill Aronson
Chief Executive Officer
Bitcoin Policy UK