European Parliament Study Endorses Central bank-issued Digital Currency Idea

Committee on Economic and Monetary Affairs (ECON) has published a study, where it has endorsed central bank-issued digital currency potential in promoting healthy competition policy in the fintech sector.

23 July, AtoZ Markets – A research study on competition issued in Fintech market has been carried out by the European Parliament Committee on Economic and Monetary Affairs (ECON). The organization has published the study results earlier last week. According to EKON’s study, central bank-issued digital currencies can be a “remedy” for the insufficient competition policy in the cryptocurrency sector. 

European Parliament Study Endorses Central bank-issued Digital Currency Idea

The study from EKON states:

“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.”

In addition, the study mentions some of the cryptocurrencies, such as Bitcoin, to be a “technological and operational paradigms that are a source of disruption for the entire sector, including monetary policy and financial stability.” Other “disruptive and innovative applications” of the nascent technologies include “AI, cloud computing, biometrics, digital identity, the blockchain, cybersecurity, RegTech, internet of things (IoT), augmented reality.”

The study further defines private digital currencies separately from the central bank-issued digital currencies (CBDC). It notes that the CBDCs are different due to a “conventional bilateral settlement with a trusted central party.”

Following on this, the study highlights that closed cryptocurrency systems are in need of a supervisory authority. In the meantime, according to EKON, central banks could consider using “permissioned cryptocurrency systems” to “complement or substitute” the currencies already used.

CBDCs can add an additional pool of competitors

The study on CBDCs further claims that they “will reshape the current competition level in the inter-cryptocurrency market.” CBDCs can add an additional pool of competitors, according to EKON:

“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 lack of competition can be also divided into “inter-cryptocurrency market” competition between cryptocurrencies, and “intra-cryptocurrency” market competition. The latter is related to the service providers, such as wallets and cryptocurrency exchanges.

Regarding the “inter-crypto market” competition, the EKON notes that the “presence of network effects” and the abundance of cryptocurrency users could appear as a barrier to entry for other cryptocurrencies that intend to enter the market. 

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