Positive statement by the EU parliament for the digital currencies issued by central banks

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The European Parliament Committee on Economic and Monetary Affairs (ECON) has published a study on competition in fintech. The study had uncovered that digital currencies issued by central banks can be the cure for the lack of competition policy in the cryptocurrency field.

“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.”

The underlying technologies like the ones of Bitcoin are mentioned in the study as “technological and operational paradigms that are a source of disruption for the entire sector, including monetary policy and financial stability.” Some of the other “disruptive and innovative applications” of these new technologies include “AI, cloud computing, biometrics, digital identity, blockchain, cybersecurity, RegTech, Internet of Things (IOT), augmented reality.”

Any other cryptocurrency that is held privately other than the ones issued from central banks has been defined separately, and also has been noted that central bank digital currencies are different by being based on “conventional bilateral settlement with a trusted central party.”

The study also points out that the closed cryptocurrency systems are in need of a supervisory authority and on the other hand the central banks can take in a advantage the use of “permissioned cryptocurrency systems” in order to “complement or substitute” the ones that are used at the moment.

Central bank’s issued digital currencies “will reshape the current competition level in the inter cryptocurrency market” by joining others that are already there:

“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 European Parliament Committee’s competition problems stated in the study can be also grouped into “inter cryptocurrency market” which is a competition between cryptos, and “intra cryptocurrency market” that represents the competition among exchanges, wallets and similar types of service providers.

When it comes to “inter crypto market” competition, it is noted in the study that the “presence of network effects” and the large number of users of digital tokens can become a stone wall entry barrier for the other coins that want to join the market. The researchers in the study theorize that this type of competition “may lead to potential collusive agreements between member of hypothetical cartels.”

On the other hand the “intra crypto market” competition like payment providers, exchanges and wallets can create a negative impact and push others out of the market in a way that it will receive miner inducements thus making a favorable decision towards one cryptocurrency over another.

A couple of weeks ago new rules have come into force from the EU that are pushing for a more strict transparency rules for digital assets in order to better protect users against terrorist financing and money laundering.

Also for the first time digital assets were the theme of discussion at the ECON’s Monetary Dialog session that included a number of 5 different reports that were including topics ranging from cryptocurrencies and central banks to crypto in the Eurosystem.