Christine Lagarde: ‘The European Central Bank Cannot Go Bankrupt or Run Out of Money’
In remarks that highlight flaws of the fiat currency system, the European Central Bank (ECB) president, Christine Lagarde, says the institution cannot go bankrupt even if it incurs losses running into trillions. According to Lagarde, normal bankruptcy rules do not apply to the ECB primarily because it is the sole issuer of euro-denominated central bank money. The Eurosystem will always be able to generate additional liquidity as needed.
Bankruptcy Rules Not Applicable to ECBThe ECB leader made her remarks while responding to a question from an Italian member of the European Parliament. According to a Reuters report, an unequivocal Lagarde argues that central banks and the ECB in particular, are exempt from the established norms. She says:
The European Central Bank can neither go bankrupt nor run out of money even if it were to suffer losses on the multi-trillion-euro pile of bonds bought under its stimulus programmes.In response to the effects of the global pandemic Covid-19, the ECB, just like other central banks, pumped trillions into the Eurozone financial system. The money was intended to help economies hard hit by lockdown restrictions as well as to boost demand for goods and services. However, the unprecedented money creation and borrowings are raising alarm as some believe the ECB went beyond its capacity. However, in an apparent response to such concerns, the ECB president not only defends the massive borrowing but asserts that financial losses cannot bring down central banks. Lagarde says: “So, by the definition, it will neither go bankrupt nor run out of money. In addition to that, any financial losses, should they occur, would not impair our ability to seek and maintain price stability.” Furthermore, Lagarde adds that “there is no legal basis for the ECB to cancel the government debt it owns.”