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The European Parliament Committee on Economic and Monetary Affairs (ECON) published a report on competition in fintech sector on July 20. The report has opined that central bank-issued digital currencies (CBDC) could offer the much needed competition in the cryptocurrency sector.
The report says
“The arrival of permissioned cryptocurrencies promoted by banks, even by central banks, will reshape the current competition level in the cryptocurrency market, broadening the number of competitors.”
Furthermore, the report designates cryptocurrencies such as Bitcoin (BTC) as “technological and operational paradigms that are a source of disruption for the entire sector, including monetary policy and financial stability.”
According to the report, other “disruptive and innovative applications” of next generation technologies include “AI, biometrics, cloud computing, blockchain, digital identity, RegTech, cybersecurity, internet of things (IoT), augmented reality.”
The report also distinguishes between private digital currencies and central bank-issued digital currencies (CBDC) by saying that the latter is based on a “conventional bilateral settlement with a trusted central party.”
Furthermore, the report suggests the use of ‘permissioned cryptocurrency systems’ to ‘complement or substitute’ the existing currencies as closed cryptocurrency networks definitely require monitoring. The study concludes that CBDCs “will reshape the current competition level in the inter-cryptocurrency market.”
“A potential inadequacy of traditional competition policy to address competition issues in the cryptocurrency markets can be found, suggesting direct public participation through a central-bank digital currency as a remedy.”
The ECON study also states that competition can be divided into “inter-cryptocurrency market” and “intra-cryptocurrency” market. While “inter-cryptocurrency” refers to competition between cryptocurrencies, “intra-cryptocurrency” denotes other service providers such as wallets and exchanges.
As far as “inter-crypto market” competition is concerned, the report points that the “presence of network effects” and large cryptocurrency users could make it difficult for new cryptos to pierce the market. The study further speculates the possibility of a rise in competition could lead to “potential collusive agreements between members of hypothetical cartels.”
The report also states that in the “intra-crypto market”, wallets, payment providers, and exchanges could collate and keep others out of the market. Earlier this month, a new EU directive calling for the implementation of strict transparency rules for crypto currencies to prevent money laundering and terrorist financing came into force.
Additionally, virtual currencies were also discussed for the first time this month at ECON’s “Monetary Dialogue” session. As many as five reports were discussed on subjects ranging from cryptocurrencies and central banks to cryptocurrencies and the “Eurosystem.”
