Central Bank Cryptocurrencies Could Solve Competition Issues EU Says

Cryptocurrencies issued by central banks may help solve competition issues in the cryptoasset market, the European Parliament has said in a study commissioned by the Committee on Economic and Monetary Affairs.

The paper, entitled Competition Issues in the Area of Financial Technology (Fintech), says that while competition between cryptocurrencies is growing, bitcoin and ethereum between them still accounted for nearly nine-tenths of the market - a "relevant indicator of the current market concentration", it adds.

Network effects, the reports authors say, give the incumbents - such as bitcoin and ether - large market power and create a "substantial barrier to entry". The report suggests:

In the future, network effects may lead to potential collusive agreements between members of hypothetical cartels.

'Permissioned' Cryptocurrencies

Therefore, the potential arrival of "permissioned" cryptocurrencies promoted by banks or even central banks could reshape the current competition level, broadening the number of competitors. The paper goes on to say:

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.

Libra Raises Concerns

Most recently the much-discussed Project Libra - a cryptocurrency and wallet system that Facebook and its partners hope to launch next year - has governments, regulators and central banks around the world in a flap.

Many are concerned that given the potential scalability of such a digital asset around Facebook's billions of global users, it could prove to overshadow even bitcoin in the crypto market, and possibly even rival some sovereign currencies.

Indeed, the study by the European Parliament is seeking to address some of the, as yet, unforeseen consequences of the fast-growing fintech sector on competition as the big technology companies begin to make moves on the financial services sector.

The area of FinTech is still very young and constantly evolving. This is why an established case practice of how to deal with competition concerns has not yet been developed and official decisions by competition authorities have still to emerge.

China and Turkey Move

Some central banks have already addressed the issue of creating their own digital currencies. The People's Bank of China (PBOC) is among those actually making a move to issue a central bank digital currency.

Earlier this month, local news outlet ChinaDaily reported the PBOC was accelerating efforts to research and develop the project that already has the approval of the State Council - the government cabinet.

Meanwhile, Turkey also announced this month in its 11th Development Plan 2019-20 ...

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Tags: Competition, Cryptocurrency, Central bank, European Parliament, People's Bank of China, Financial technology, Competition, European Parliament Committee on Economic and Monetary Affairs, Network effect, Libra