Central bank-issued digital currencies could “reshape the current competition level in the cryptocurrency market,” according to a study published by the European Parliament Committee on Economic and Monetary Affairs.
The study suggested that central banks could consider adopting “permissioned cryptocurrency systems […] to complement or substitute the permission-less currencies already in use.”
However, the study also warned that, the market power of banks in traditional banking services might be used to limit competition in the cryptocurrency market through pre-emptive acquisitions or predatory pricing schemes.
In the paper, the authors describe cryptocurrencies as “technological and operational paradigms that are a source of disruption for the entire sector, including monetary policy and financial stability.”
The authors did acknowledge that “[…] tech start-ups are generally able to offer financial services for lower costs and at a higher efficiency than the incumbents,” adding that “it is also generally understood that they can offer better user experiences,” thereby posing significant challenges to traditional financial services providers.
As widely reported in recent years, central banks have grown increasingly worried about cryptocurrencies. The latest example came from the head of the Bank for International Settlements, that serves as a central bank for other central banks, in June when he said: “young people should stop trying to create money.”
Yet, there have been several reports of central banks around the world working on their own “central bank digital currencies,” likely in an effort to contain the risks that cryptocurrencies pose in their view.
For example, the head of the International Monetary Fund, Christine Lagarde, recently suggested that central banks should “fight fire with fire” by deploying elements of Blockchain technology themselves.
People working in the blockchain industry worry that a central bank cryptocurrency would run counter to the philosophy of blockchain, where everything is decentralised. Also, it could lead lead to harmful legislation.