EU Parliament Study says CBDCs “Will Reshape Competition” in Digital Currencies

Econ reviews digital currenciesA study paper commissioned by the European Parliament Committee on Economic and Monetary Affairs (ECON) has provided insights into positive impacts that central bank issued digital currencies could make on the crypto markets.

Titled “Competition issues in the Area of Financial Technology (FinTech),” the document pinpoints that if central banks can issue digital currencies, then it will be a remedy for lack of competition policy in the sector. The in-depth study acknowledged that innovative technologies such as Bitcoin “are a source of disruption for the entire sector, including monetary policy and financial stability.

Introducing CBDC’s as a solution to competition created by the increasing number of virtual currencies, the study 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.

While Central bank issued digital currencies will be developed as a “conventional bilateral settlement with a trusted central party,” other digital currencies will continue to exist in its decentralized nature.

The study suggests that banks consider building “permissioned cryptocurrency systems” to “complement or substitute” existing fiat currencies. This “will reshape the current competition level in the inter-cryptocurrency market” which was defined as competition between different cryptos.

Also with this approach, the EU-backed study says that “a potential inadequacy of traditional competition policy to address competition issues in the cryptocurrency markets can be found, thus, suggesting direct public participation through a central-bank digital currency as a remedy.

Other categories of FinTech services proposed include payments, lending and crowdfunding, planning, trading and investments, insurance, data and analytics, security, and the revolutionary blockchain technology.

Digital currencies in the spotlight

Taking a closer look at the picture, this will be the second time in July that a parliament explores the possibility of introducing CBDC’s with the first case in Germany resulting in outright rejection of the concept.

While the nation labeled believes that CBDC’s has “some risks that are not well understood,” other countries such as Senegal, Tunisia, the Marshall Islands, and Venezuela have already introduced Central bank digital currencies, with England looking to join the growing list.

Mandy Williams is a freelance writer with a keen interest in the crypto and blockchain industry.