Debasement, measured honestly

Two numbers, and why they are never one

Euro-area broad money has grown at roughly 5% a year over the past two decades. Measured consumer prices rose at roughly 2% a year over the same period. Both are real, published, checkable figures. They measure two different things.

Money-supply growth counts how many units of currency exist. Consumer-price inflation counts what a basket of goods costs. They are related, but they are not the same number and the gap between them does not vanish because it would be rhetorically convenient.

What cash actually did

The honest version is less dramatic and more useful, because it depends entirely on which kind of cash you held.

Cash earning nothing

A current account paying zero lost roughly 3.5% to 4% a year in purchasing power over the period since 2020. That is a real cost, and it is the one most people are actually paying.

Cash earning the policy rate

Money held in short-dated government bills or a money-market fund lost roughly 1% a year over the long run — and from 2023 to 2025 it earned a positive real return. In those years cash gained purchasing power rather than losing it.

So the erosion is a fact about idle cash rather than about cash. The honest statement is that a deposit left to sit gives up a few percent a year, that this is a cost worth avoiding, and that money with a job has at times given up nothing at all. That is a smaller claim than the one usually made, and it has the advantage of being true.

Where the gap actually shows up

If new money were showing up mainly in the shopping basket, consumer prices would have grown with the money supply, and they did not. The gap turns up somewhere else: in the price of things that are scarce and desirable to hold — assets, land, the equity of established businesses.

That is the actual argument for owning hard assets, and it is a narrower argument than the one usually made. It is not that your groceries are about to triple. It is that the unit you are measuring your savings in has been diluted faster than the basket used to check it, and that the difference has consistently landed in asset prices.

Three months in the bank, and nothing more

The practical consequence is small and specific: keep roughly three months of expenses in the bank, where it is instantly available and where its erosion is the price of that availability. The bank is for spending. It is not where saving happens.

That emergency cash is a different thing from the plan’s reserve, which has its own job, its own size, and its own cost. Those are set out in the reserve, and what it costs.