EU gets positive about central bank crypto

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The issue is one of competition in the fintech sector and how to manage it. A study on the topic commissioned by the European Parliament Committee on Economic and Monetary Affairs (ECON), published July 20th 2018, suggests that central bank-issued digital currencies could be one of the remedies.

One passage in the report said, “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.”

It also stated that cryptocurrencies are “technological and operational paradigms that are a source of disruption for the entire sector, including monetary policy and financial stability.” It also pointed other technologies that could be similarly disruptive, including cloud computing, biometrics, digital identity, blockchain, cybersecurity, RegTech, Internet of Things (IoT), augmented reality.”

Private digital currencies, such as bitcoin, are defined separately from central bank-issued digital currencies (CBDC), noting that the CBDCs are different because they are based on a “conventional bilateral settlement with a trusted central party.”

What’s the fintech competition issue?

According to the ECON study, the competition issues can be divided into “inter-cryptocurrency market” — competition between cryptos, and “intra-cryptocurrency” — market competition between service providers like wallets and exchanges.

When talking about the “inter-crypto market” competition, the study claims that the “presence of network effects” and a high number of users of an individual cryptocurrency could provide a barrier to entry for other cryptos attempting to join the market. The study suggests that this competition “may lead to potential collusive agreements between members of hypothetical cartels.”

And as for the “intra-crypto market” competition, the report states that wallets, exchanges, and payment providers could develop practices that would keep others out of the market, one example being incentivising miners to choose one cryptocurrency over another.

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