The interest of the ECB in finding the best cross-border payment solution comes from its role as the central bank for the 19 European Union member countries that have adopted the euro.
The European Central Bank (ECB), in a recent study, identified the ultimate cross-border payment media and crowned central banks digital currencies (CBDCs), the winner over all other competitors.
The ECB’s interest to identify the best cross-border payments solution stems partly from its role as the central bank for the 19 European Union member countries that have adopted the euro. In the study ” Towards the Holy Grail of Cross Border Payments”, Bitcoin was identified as the most prominent and unbacked crypto asset.
EBC’s view of Bitcoin as a bad cross border payment system comes down to the settlement mechanism for the volatile asset.
“Bitcoin payments are made more difficult because settlements in the Bitcoin network occur only every ten minutes. Valuation effects already manifest at settlement.
The study highlighted Bitcoin’s speed and inherent scaling issues. However, it did not consider timely upgrades Taproot or Lightning Network that can improve network performance. It concluded that the underlying technology, and in particular its “proof of work” layer, is expensive and inefficient.
The ECB recognized CBDCs, on the other hand. This is due to their greater compatibility with Forex exchange (FX), conversions. This has two major advantages: the preservation of monetary sovereignty as well as the ability to receive instant payments through intermediaries like central banks.
Phillip Lowe, the Australian central bank governor, disagreed with the ECB’s reliance upon CBDCs. He believed that a private solution for cryptocurrency was better as long as there are no risks.
Strong regulations and support from the state can help mitigate risks associated with crypto adoption, said Lowe.
“These tokens will be widely used by the community and need to be backed or regulated by the state, just like we regulate bank deposits.”
Lowe believes that private companies are more adept at creating the best features of cryptocurrency than the central banks.