European Central Bank’s (ECB) interest in identifying the best cross-border payment solution arises from the fact that it serves as the central bank of the 19 European Union nations that have adopted the Euro.
A study conducted by the European Central Bank (ECB) on determining the best cross-border payment medium awarded central bank digital currencies (CBDCs) as the winner against competitors like Bitcoin (BTC), banking, stablecoins, and many others.
ECB’s interest in determining the best cross-border payment solution comes from the fact that it operates as the central bank for the European Union zone where the primary currency is the Euro. The recent study, “Towards The Holy Grail of Cross-border Payments,” termed bitcoin as the most prominent yet unbanked crypto asset.
The bank’s opinion of Bitcoin as a bad cross-border payment system boils down to the settlement mechanism of the highly volatile asset, adding 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 more complicated.”
While the study pointed at Bitcoin’s inherent scaling and speed issues, it never considered the prompt upgrades – Taproot and Lightning Network – which improve the network performance, concluding that:
“The underlying technology (and in particular its ‘proof-of-work’ layer) is inherently expensive and wasteful.”
On the flip side, the ECB saw that CBDCs are a better fit for cross-border payments owing to increased compatibility with forex exchange (FX) conversions. Two key benefits highlighted in that regard are the preservation of monetary sovereignty and the ease of immediate payments through intermediaries like central banks.
Contradicting the ECB’s reliance on CBDCs, Australian central bank Governor Phillip Lowe thought that a private solution “is going to be better” for crypto provided that the risks are reduced through adequate regulation.
Reducing the risks related to crypto adoption can be fended off by strong regulations and state backing, according to Lowe:
“If these tokens are going to be used widely by the community, they are going to need to be backed by the state or regulated just as we regulate bank deposits.”
In Lowe’s view, private firms are “better than the central bank at innovating” the best components for crypto.