A recent study by the European Central Bank (ECB) on determining the ultimate cross-border payment broker crowned with central bank digital currencies (CBDCs) as the winner against competitors, including banks, Bitcoin (BTC) and stablecoins, among others.
The European Central Bank’s interest in determining the best cross-border payment solutions stems from the fact that it acts as the central bank for the 19 European Union countries that have adopted the euro. The study, “Towards the Holy Grail of Cross-Border Payments,” singled out Bitcoin as one of the most notable unbacked crypto assets.
EBC’s view of Bitcoin as a bad cross-border payment system boils down to the settlement mechanism of the highly volatile asset, adding the following:
“Because settlement in the Bitcoin network only occurs approximately every ten minutes, the effects of valuation are already realized at the moment of settlement, which in fact makes Bitcoin payments more complex.”
Although the study highlights the scalability and speed issues inherent in Bitcoin, it fails to consider the timely upgrades — the Taproot and Lightning Network — that improve network performance, concluding that “the underlying technology (and in particular the layer” Proof of work “its own” is inherently costly and time consuming.
On the other hand, the European Central Bank has recognized that digital central bank currencies are better suited for cross-border payments due to the greater compatibility with foreign exchange (FX) transfers. Two main advantages have been highlighted in this regard, namely the maintenance of monetary sovereignty and the ease of instant payments via intermediaries such as central banks.
Related Topics: Reserve Bank of Australia Governor Favors Crypto Technology for the Private Sector
In contrast to the European Central Bank’s reliance on central bank currencies, Reserve Bank of Australia Governor Philip Lowe believes a private solution “would be better” for cryptocurrencies as long as the risks are mitigated through regulation.
Lowe said that mitigating risks related to crypto adoption can be repelled by strong regulations and state support, adding:
“If society is going to use these tokens on a large scale, they will need to be supported by the state or regulated just as we regulate bank deposits.”
In Lowe’s view, private companies are “better than the central bank at creating” the best features of cryptocurrency.