A recent survey conducted by the European Central Bank (ECB) identified the ultimate cross-border payment medium, central bank award-winning digital currencies (CBDCs) as the winner over competitors including banking, Bitcoin (BTC) and stablecoins.
The ECB’s interest in identifying the best solution for cross-border payments stems from the fact that it acts as the central bank of the 19 countries of the European Union that have adopted the euro. The study, “Towards the holy grail of cross-border payments”, referred to Bitcoin as the most prominent crypto asset without backup.
EBC’s view of Bitcoin as a poor 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 set in at the time of settlement, which actually complicates Bitcoin payments.”
While the study revealed Bitcoin’s inherent scaling and speed issues, it failed to consider the timely upgrades – Taproot and Lightning Network – that improve network performance, concluding that “the underlying technology (and in particular the “proof -of-work” layer) is inherently expensive and wasteful.”
On the other hand, the ECB recognized CBDCs as better suited for cross-border payments due to greater compatibility with forex exchange (FX) conversions. Two key benefits highlighted in this regard are the preservation of monetary sovereignty and the convenience of direct payments through intermediaries such as central banks.
Related: Australian central bank governor favors private sector crypto technology
Contrary to the ECB’s reliance on CBDCs, Australian central bank governor Phillip Lowe believed that a private solution “will be better” for cryptocurrency as long as risks are mitigated through regulation.
Reducing risks related to crypto adoption can be fend off by strict regulation and state aid, Lowe stated, adding:
“If these tokens are widely used by the community, they should be backed by the state or regulated, just like we regulate bank deposits.”
According to Lowe, private companies are “better than the central bank at innovating” the best features for cryptocurrency.