Money, inflation & trust: why your euro loses purchasing power

When prices rise, your money buys less, even if your account balance stays the same. So we start with the money you use every day. Understanding how the euro works also helps you understand the idea behind Bitcoin – and what Bitcoin can’t do.

What money has to do

The European Central Bank (ECB) names three functions:^[1]

• Medium of exchange: you use it to pay for goods and services.
• Unit of account: prices are expressed in money, which makes them comparable.
• Store of value: you earn money today and spend it later – ideally without losing much value.

In the past, money was often made of a precious metal such as gold, or could be exchanged for it. The euro is fiat moneyGlossaryFiat moneyMoney that isn’t backed by gold or other physical assets but rests on government decree and trust – such as the euro and the US dollar. Most of it is created by commercial banks, for example through loans.In the glossary →×: not tied to any commodity, issued by the central bank and declared legal tender. People accept it because it can be used everywhere and the central bank works to keep its value stable.^[1] So the euro works as long as people trust it and the central bank.

How money is created

Banks don’t simply lend out their customers’ savings. According to the Bank of England, most money is created when commercial banks make loans.^[2]

Example: you take out a €20,000 car loan. The bank credits €20,000 to your current account – a balance that didn’t exist before. When you repay the loan, it disappears again. How much money is created this way overall is limited mainly by the central bank’s monetary policy, for example through its key interest rates.^[2]

The ECB measures the amount of money in the euro area using, among other things, M3 (cash, overnight deposits, plus short-term deposits and securities):^[3]

€4,447 bn

M3 money supply in January 1999

launch of the euro as book money

€17,646 bn

M3 money supply in August 2026

almost four times as much

≈ 5.1%

average growth per year

own calculation 1999–2026

Over the same period, prices rose by only around 2% a year (see below) – partly because the economy grew too. ‘More money means prices rise to the same extent’ is therefore too simple.

Inflation: what it is and where it stands

InflationGlossaryInflationA general rise in prices that makes money lose purchasing power. The ECB aims for 2% a year over the medium term for the euro area.In the glossary →× means the general price level is rising, so each euro buys less. In the euro area it is measured with the Harmonised Index of Consumer Prices (HICP). The ECB aims for 2% over the medium term, symmetrically: inflation that is too low is considered just as undesirable as inflation that is too high.^[4] The buffer above zero gives it room to cut interest rates and a safety margin against deflation, i.e. falling prices.^[5]

As of August 2026 (new figures are published every month):

• Euro area: 3.2%, after 2.9% in July and 2.0% a year earlier. The biggest drivers were services and energy.^[6]
• Germany (CPI): 2.9%. Energy cost 10.5% more than a year earlier, motor fuels 27.7% – mainly because of higher crude oil prices since the start of the Iran war, according to Germany’s Federal Statistical Office (Destatis).^[7]

The highest rate so far in the euro area was 10.6% in October 2022.^[9]

What inflation does to your savings

In Germany, the consumer price index rose from 100 (2020) to 121.9 (2025), most sharply in 2022 (+6.9%) and 2023 (+5.9%).^[8] In the euro area, the HICP rose from 73.76 to 129.54 points between January 1999 and December 2025.^[10] This gives us (own calculation):

≈ €82

purchasing power of €100 from 2020 in 2025

Germany, CPI

≈ 57 cents

purchasing power of a 1999 euro at the end of 2025

euro area, HICP

≈ 2.1%

price increase per year since 1999

close to the ECB target

Moderate inflation is intended and no reason to panic. But it is a reason not to leave money sitting without interest for decades. How to go about it is explained in Saving & preserving value and Financial foundations first.

Trust – and Bitcoin’s approach

In the euro area, trust in the euro and the ECB has largely held since 1999: on average, price increases have been close to the target. That can’t be taken for granted. The inflation of 2022 took many people by surprise, and in other countries currencies lost most of their value within a few years or people could no longer get at their bank deposits (examples in Bitcoin is freedom).

Bitcoin relies on rules instead of trust in people:

• New bitcoin are only created as a block rewardGlossaryBlock rewardWhat a miner receives for a valid block: newly created bitcoin (the subsidy) plus the fees of all transactions in the block. The subsidy halves every 210,000 blocks; on 20 April 2024 it fell to 3.125 BTC.On the learning path: Stage 2 · Step 2 – Halving & 21 million →In the glossary →× for new blocks. It halves every 210,000 blocks, roughly every four years, which caps the total supply at just under 21 million BTC.^[11] Details: The halving & the 21 million.
• Each new block currently creates 3.125 BTC. With 20,093,887 BTC in circulation, the supply grows by less than 1% a year (M3 since 1999: around 5%). With each halvingGlossaryHalvingEvery 210,000 blocks – roughly every four years – the number of new bitcoin per block is cut in half. The fourth halving, on 20 April 2024, reduced it from 6.25 to 3.125 BTC.On the learning path: Stage 2 · Step 2 – Halving & 21 million →In the glossary →×, the rate roughly halves; the next one is expected around March 2028.^[11]
• The rules apply equally to everyone, are written in the public source code and can be checked with your own software.

Is Bitcoin a hedge against inflation?

What is this about? Supporters see Bitcoin as protection against the gradual debasement of fiat money. Critics counter that Bitcoin has not yet kept this promise.

The numbers: at the end of 2021, one bitcoin cost around $46,200; at the end of 2022, around $16,500.^[12] The BIS sees the high volatilityGlossaryVolatilityA measure of how strongly a price fluctuates, usually given as annualised standard deviation in per cent. Bitcoin fluctuates much more than a broad stock index or gold – up and down.On the learning path: Stage 3 · Step 3 – Returns & risk →In the glossary →× as a consequence of the design: because supply doesn’t respond to demand, every swing in demand becomes a swing in price.^[13] These charts show the current price ($85,533) and the full price history:

What does this mean for you?

• Bitcoin is no substitute for an emergency fund. Reserves for repairs or losing your job belong in a stable form you can access quickly.
• If you hold Bitcoin long term against the loss of purchasing power, you are betting on a thesis and must be able to sit through heavy losses for years. Only use money you can do without. What lies behind the thesis – and what scarcity can’t do – is explained in Digital scarcity.
• Whether Bitcoin suits you depends on your goals: Goal first, strategy second.