A recent study conducted by the European Central Bank (ECB) on the identification of the ultimate cross-border means of payment crowned central bank digital currencies (CBDC) as a winner against competitors, including banking, Bitcoin (BTC) and stablecoins, among others.
The ECB’s interest in identifying the best cross-border payment solution stems from the fact that it is the central bank of the 19 European Union countries that have adopted the euro. The study, “Towards the Holy Grail of Cross-Border Payments,” named Bitcoin the most important unbacked crypto asset.
EBC’s view of Bitcoin as a bad cross-border payment system boils down to the highly volatile asset’s settlement mechanism, adding that:
“Because settlement in the Bitcoin network only occurs approximately every ten minutes, valuation effects already materialize at the time of settlement, which actually complicates Bitcoin payments.”
Although the study highlighted the scaling and speed issues inherent in Bitcoin, it did not take into account timely upgrades – Taproot and Lightning Network — that improve network performance, concluding that “the underlying technology (and in particular its proof-of-work layer) is inherently expensive and unnecessary.”
On the other hand, the ECB has recognized that CBDCs are better suited for cross-border payments due to greater compatibility with foreign exchange (FX) conversions. Two major advantages put forward in this regard are the preservation of monetary sovereignty and the ease of instant payments through intermediaries such as central banks.
Related: Australia’s central bank governor promotes private sector crypto tech
Contradicting the ECB’s reliance on CBDCs, Australia’s central bank governor, Phillip Lowe, opined that a private solution “will be better” for cryptocurrency as long as the risks are mitigated by regulation.
Mitigating the risks of crypto adoption can be avoided through strong regulation and state support, Lowe said, adding:
“If these tokens are to be widely used by the community, they will need to be supported by the state or regulated much like we regulate bank deposits.”
In Lowe’s view, private companies are “better than the central bank at innovating” the best features of cryptocurrency.