Tuesday, August 16, 2022

CBDC Better Than BTC in Cross-border Payments: ECB

The Takeaway:

In a recent study on choosing the best cross-border payment method, the European Central Bank (ECB) declared central bank digital currencies (CBDCs) the winner over rivals, including banking, Bitcoin (BTC), and stablecoins, among others.

As per the paper, an ideal cross-border payment is one that excels in the below four traits:

  • They are immediate
  • They are cheap,
  • They are universal in terms of reach, and
  • They can be settled in a secure settlement medium

The ECB found CBDCs better than other options like BTC in all these aspects.

Because it acts as the central bank for the 19 member states of the European Union that have embraced the euro, the ECB has an interest in determining the optimum cross-border payment option. Bitcoin was referred to as the most well-known unbacked crypto asset in the paper “Towards The Holy Grail of Cross-border Payments.”¬†

 

Which is Better – BTC or CBDC?

It all comes down to the settlement method of the extremely volatile asset, according to EBC, who also notes that:

“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.”

The study concluded that “The underlying technology (and in particular its “proof-of-work” layer”) is inherently expensive and wasteful” despite highlighting Bitcoin’s inherent scaling and speed issues.

However, because of their superior compatibility with foreign exchange (FX) conversions, the ECB recognized CBDCs as a better choice for cross-border payments.

The maintenance of monetary sovereignty and the simplicity of prompt payments through intermediaries like central banks are two key benefits noted in this regard.

 

Other Perspectives on the Issue

According to Australian central bank Governor¬†Phillip Lowe, a private solution for cryptocurrencies “is going to be superior” as long as risks are reduced by regulation, in contrast to the ECB’s dependence on CBDCs.

Strict rules and official support help ward off problems associated with crypto adoption said Lowe, who added:

“These tokens need to be backed by the government or regulated in the same way that we regulate bank deposits if they are to be broadly used by the community.”

According to Lowe, private businesses “innovate” the best features for cryptocurrencies “better than the central bank.”¬†

Disclaimer: The article reflects the opinions of the author and is not representative of Chaintimes’ views.
The article does not offer any investment advice. User discretion is advised when investing in or trading with cryptocurrency. Extensive and diligent research should be carried out by the reader before making a decision.

Vivekanandan Tiwari
Vivekanandan Tiwari
Vivekanandan is an IT graduate, He loves to write about blockchain-related techs. He is enthusiastic about Financial markets and is always eager to learn.

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