The ECB believes CBDC will be better for cross-border payments than private cryptocurrencies like Bitcoin.
The latest European Central Bank (ECB) research on an ideal cross-border payment system claims that central bank digital currencies (CBDCs) outperform Bitcoin, stablecoins, and other traditional banking facilities, including SWIFT.
The ECB’s interest in determining the best cross-border payment solution stems from the fact that it serves as the central bank of the 19 European Union countries that have adopted the euro. The research, “Towards the Holy Grail of Cross-Border Payments,” named Bitcoin the most prominent unsupported crypto asset.
EBC’s opinion of Bitcoin as a lousy cross-border payment system has to do with the settlement mechanism of the highly volatile asset, adding:
“Since the settlement in the Bitcoin network occurs only around every ten minutes, valuation effects are already materializing at the moment of settlement, making Bitcoin payments actually more complicated.”
While the study highlights Bitcoin’s inherent speed and scale issues, it did not consider existing upgrades — Taproot and Lightning Network — to improve network performance, concluding that “The underlying technology (and especially its ‘proof of work’ layer) is inherently costly and wasteful.”
On the other hand, the ECB has recognized CBDC as a more suitable method for cross-border payments due to its greater compatibility with foreign exchange (FX) conversions. The two main advantages highlighted in this regard are maintaining monetary sovereignty and the ease of instant payments through intermediaries such as central banks.
In contrast to the ECB’s reliance on CBDCs, Australia’s central bank Governor Phillip Lowe believes that a privately developed cryptocurrency solution “would be better” if risks are mitigated through regulation. Lowe added:
“If these tokens are going to be used widely by the community, they are going to need to be backed by the state or regulated just as we regulate bank deposits.”
In Lowe’s view, private companies are “better than central banks at innovating” the best features for cryptocurrencies.
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