The European Central Bank (ECB) is considering using central bank digital currencies (CBDC) as means of curbing the market dominance of big tech firms. The body is unveiling a discussion paper that will guarantee a smooth continuation of the current monetary system. The “network externalities” surrounding the use of the fiat medium of exchange have kept the control of the payments markets in the hands of BitTech firms. But ECB is suggesting ways to use CBDC to breach the dominance and make it a level playing field for all players.
The Paper Recognizes Te Increasing Interests In CBDC
The discussion paper starts by recognizing the increasing interest in CBDCs, which have also received serious interest from central banks worldwide. So far, two countries, Nigeria (eNaira) and the Bahamas (Sand Dollar) have launched their CBDC.
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The report provides detailed information about their potential for adoption and level of growth It also provided several use cases within the rapidly digitizing economy. Additionally, the CBDC ad its increasing interests have resulted in several digital platforms becoming dominant business models while more companies have increased their requirements for software and data. It has also led to an anti-competitive environment that is shifting the digital market power towards the control of tech giants.
The Increasing Dominance Of Digital Currency Issuers
Most users are attracted to these digital platforms simply because others are using them, a situation called network externalities. This can lead to a winner-takes-it-all outcome in the industry. The report revealed that such a situation is not encouraging for the digital industry.
The ECB is also afraid that the dominant platforms that issue digital currencies, especially the Diem, could become dominant issuers of private money through the same network externalities. The fear is that it can challenge the monetary sovereignty of a domestic economy. Once it starts acting as a unit of account, medium of exchange, and store of value, it puts the use of the fiat currency in jeopardy.
But a CBDC can be used to ensure the continuous practical use of public money in the economy. It can e used to resolve issues in financial intermediation and as a means of reducing the cost of payments.
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