Future of cryptocurrency makes EU sceptic, while CBDC lights up hope
European Parliament on Friday published a research study that shed light on competition issues in fintech domain. European Parliament Committee on Economic and Monetary Affairs [ECON] has been specifically tasked with carrying out this research. The study made the fact explicit that cryptocurrency issued by the central bank may serve as a “remedy.”
The remedial aspect of cryptocurrencies is reflected due to the deficit of proper competition framework in the crypto market. According to the study, “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.”
Bitcoin [BTC] in danger
Decentralised digital currencies including Bitcoin [BTC] received warning of derailment from the European Union. The European Union mentioned the possibility of these crypto coins getting derailed in the future by central banks worldwide.
Top cryptocurrency Bitcoin [BTC] has been described in the study as “technological and operational paradigms that are a source of disruption for the entire sector, including monetary policy and financial stability.” Few other “disruptive and innovative applications” of advanced technologies involve “AI, cloud computing, biometrics, digital identity, blockchain, cybersecurity, RegTech, internet of things (IoT), augmented reality.”
The study affirmed the fact that closed systems of digital currencies need the vigilance of supervisory body. It is for this reason that central banks may think of leveraging, “permissioned cryptocurrency systems” for complementing or even substituting currencies already in use. A central bank issued digital currency, or CBDC, is distinct from private cryptocurrencies since it is a “conventional bilateral settlement with a trusted central party.”
As per the research study, CBDC “will reshape the current competition level in the inter-cryptocurrency market.” The study also stated, “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.”
As per the ECON research, competition issues can be classified into “inter-cryptocurrency market“, where the crypto coins compete, and “intra-cryptocurrency market”, where service providers form a part of the competition.
Regarding the concept of “inter-crypto market”, the study revealed the combination of “presence of network effects” and an increased number of crypto users. These two factors together may provide friction to other cryptocurrencies while making their entry to the market. The study has highlighted that the competition, “may lead to potential collusive agreements between members of hypothetical cartels.”
This is the first time that digital currencies was deliberated upon at the “Monetary Dialogue” session of ECON. This elaborate discussion covered topics from the crypto domain and central banks to cryptocurrency and “Eurosystem.”
Image via Google
Join our Telegram group