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ECB criticizes Bitcoin – CBDCs are the “Holy Grail”

 


According to a report by the European Central Bank (ECB), central bank digital currencies (CBDC) could be the “holy grail” of cross-border payments and have the potential to oust everything else on the market – including bitcoin and stablecoins.


The ECB wrote in the report that of all cross-border means of payment, Bitcoin is “the least trustworthy. ” In addition, the cryptocurrency is said to be “ inherently expensive and wasteful” .


Bitcoin vs. central bank digital currencies

As part of the report , entitled “Towards the holy grail of cross-border payments”, the central bank analyzed a number of different options. Also known as remittances, these payments continue to be slow, expensive and extremely inefficient. The report, co-authored by Ulrich Bindseil, Director General for Market Infrastructure and Payments, states:


“The holy grail of cross-border payments is a solution that enables cross-border payments to be processed promptly, cost-effectively, universally and over a secure settlement medium.”


In March 2022, the global average cost of international money transfers was 6.09% . For some international transfers, the cost of a single transaction can even rise to around 20% . The report weighed up a number of potential alternatives and examined which might be the best solution.


According to the report, Bitcoin has a number of inherent vulnerabilities, such as the inefficient proof-of-work consensus mechanism and the unstable purchasing power of the cryptocurrency itself. The authors also classified the cryptocurrency as an "international vehicle for illicit payments . "


The authors concluded that Bitcoin "is unlikely to be the holy grail of cross-border payments ." Stablecoins are even more “ problematic” than Bitcoin due to the “ closed loop systems” and fragmentation .


After carefully considering the merits of all options, the ECB's 59-page central bank report concluded that a CBDC under the control of central banks such as the European Central Bank is the best and most likely route to the "holy grail" of efficient payments.

G20 countries promote international payments

In 2020, G20 members identified improving cross-border payments as one of the organization's top priorities.


The Financial Stability Board (FSB) has been mandated to work with the Committee on Payments and Market Infrastructures (CPMI) to identify the current issues in the system and develop a plan for improvement. In a 2021 analysis, the FSB wrote:


“Cross-border payments are at the heart of international trade and economic activity. […] However, for too long, cross-border payments have faced four specific problems: high costs, slow speeds, limited access and insufficient transparency.”


The reasons for this lie in the high costs and inefficiencies that the traditional banking system entails. Cost factors include, but are not limited to, operational costs, financial compliance costs, network costs, correspondent costs, foreign exchange costs, and liquidity costs. However, the banking system itself had previously benefited from these self-created costs.


While this series of inefficiencies has plagued the system for years, there now seems to be a real willingness to actively address the problem.


The question that now arises is what caused the legacy financial system to suddenly prioritize solving a problem it itself has not tackled for decades. It is also noticeable that the ECB puts Bitcoin in a bad light. Are the banks afraid of losing control of international payments? Or is the ECB's criticism really justified?


Disclaimer

All information contained on our website has been researched to the best of our knowledge and belief. The journalistic contributions are for general information purposes only. Any action that the reader takes based on the information found on our website is entirely at their own risk.

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