With the prevailing issues in the fintech industry, a study has been tasked recently by the European Parliament Committee on Economic and Monetary Affairs.
The study suggested that the central bank-issued digital currencies serve as a ‘remedy’ for the absence of competition regulation in the crypto industry.
It added the allowed cryptocurrencies promoted by banks, especially central banks, will transform the current playing field in the crypto market by increasing the number of competitors.
The study cited the digital currencies such as Bitcoin as necessary paradigms that can contribute to the disruption of the whole sector, including monetary policy and financial stability.
Other new applications of innovative developments involve “AI, cloud computing, biometrics, digital identity, blockchain, cybersecurity, RegTech, internet of things (IoT), augmented reality.”
Private cryptocurrencies are separate from central bank-issued digital currencies (CBDC). The CBDCs are derived from a “conventional bilateral settlement with a trusted central party.”
The study noted that while closed cryptocurrency systems need a supervisory role, central banks should consider the “permissioned cryptocurrency” processes to integrate or change the existing currencies.
The study claimed that CBDCs are expected to reshape the present playing field in the inter-cryptocurrency market by adding the number of competitors.
It noted the lack of traditional competition policy to respond to the competition issues in the cryptocurrency industry is seen. The study also suggested direct public participation using a central-bank digital currency can be the remedy.
As regards the competition issues, the study noted, this can be classified into “inter-cryptocurrency market” competition that is available between cryptos and “intra-cryptocurrency” market competition as found among service providers such as wallets and exchanges.
Regarding “inter-crypto market” competition, the study cited the “network effects” and an increasing number of users are a barrier for other cryptos to enter the market. The study forecast that this scenario can cause potential collusive agreements between members of hypothetical cartels.
In terms of “intra-crypto market” competition, wallets, exchanges, and payment providers should follow systems to keep the investors out of the market, including getting inducements from miners that prioritize one cryptocurrency against another.
In mid-July, a new EU directive has been passed providing stricter transparency measures for cryptocurrencies to prevent money laundering and terrorist financing.