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European Central Bank: CBDCs better than Bitcoin (BTC) for cross-border payments

 


In a recent study by the European Central Bank (ECB) to identify the ultimate cross-border means of payment, central bank digital currencies (CBDCs) emerged victorious over rivals such as banks, Bitcoin ( BTC ) and stablecoins.


The ECB's interest in the best solution for cross-border payments stems from the fact that it acts as the central bank for 19 countries in the European Union that have adopted the euro. In the study "Towards The Holy Grail of Cross-border Payments" Bitcoin is named as the most well-known unsecured crypto-asset.


The ECB believes that Bitcoin is a bad cross-border payment system. She says the settlement mechanism of the highly volatile asset poses a problem:


"Because settlement on the bitcoin network only occurs about every ten minutes, valuation effects occur at the moment of settlement, which actually complicates bitcoin payments."

While the study highlights Bitcoin's inherent scaling and speed issues, it did not take into account the Taproot and Lightning Network upgrades that improve the network's performance. The bank concluded "the underlying technology (and particularly its 'proof-of-work' layer) is inherently expensive and wasteful".


On the other hand, the ECB has recognized that CBDCs are more suitable for cross-border payments as they have better compatibility with foreign exchange conversions. Two important advantages highlighted in this context are the preservation of monetary sovereignty and the fact that instant payments through intermediaries such as central banks are very easy.


Unlike the ECB, which relies on CBDCs, Australia's central bank governor Phillip Lowe believes that a private cryptocurrency solution is better if the risks are mitigated through regulation.


The risks that come with adopting cryptocurrencies can be mitigated with strict regulations and government support, Lowe said. In addition, he stated:


"If these tokens are going to be widely used by the community, they need to be government supported or regulated like we regulate bank deposits."

Lowe believes that private companies can develop the best features for cryptocurrencies, and they can do it better than the central bank.

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