CBDC Could Be ‘Holy Grail’ of Cross-Border Payments, ECB Says, Sees Bitcoin as Less Credible – Finance Bitcoin News

Several solutions can potentially improve cross-border payments significantly and central bank digital currency (CBDC) could be the “holy grail,” according to the European Central Bank (ECB). In a new report, the eurozone’s monetary authority also claims stablecoins, among other options, are “problematic.”

‘Holy Grail’ of Cross-Border Payments in Reach Through CBDC, European Central Bank Insists

The European Central Bank recently released a report stating that cross-border payment should be quick, easy, affordable, universal, secure, and made in an anonymous medium. For the first time, the “holy grail” of such transactions is within reach, thanks to declining data transfer costs, the birth of innovative concepts, and global collaboration aiming to enhance these payments, the regulator says in the recently published paper.

The review, co-authored by ECB’s Director-General for Market Infrastructure and Payments Ulrich Bindseil and economist George Pantelopoulos, explores various ways to achieve these objectives. The review includes cryptocurrencies such bitcoin, stabilitycoins and modernized correspondent banking. It also examines fintech solutions as well as digital currencies from central banks or CBDCs.

Of these, bitcoin is the “least credible” and hence unlikely to be the “holy grail” of cross-border payments, they say, pointing to three main reasons for their conclusion: an inefficient proof-of-work mechanism, comparative advantages resulting from regulatory gaps that will be closed by authorities as they allegedly undermine anti-money laundering regulations, and the leading crypto’s unsuitability as a means of domestic payment as it’s “inherently unstable” in terms of purchasing power.

Stablecoins, although they take an intermediate spot, can be even “more problematic” due to the employment of closed-loop solutions, their market power and fragmentation, the report notes. The report also lists currency substitution as a risk, along with the possibility of losing monetary sovereignty. The authors acknowledge that they can work as a payment method for many reasons. These include their ability to be universally accessible and stable value in relation to other fiat currencies.

The European Central Bank believes there are two other options that combine technical feasibility with relative simplicity, while keeping a competitive architecture and avoiding the dominance by small market players who could eventually use their market power. These are the solutions that the European Central Bank believes they are.

Interlinking domestic instant payment systems with future CBDCs using a competitive FX layer may be the best way to achieve the ultimate goal of larger cross-border payment corridors.

Each option reviewed requires that AML/CFT compliance progress be made. The ECB says this will ensure straight-through-processing for the large majority of cross-border payments. The central bank raises the question whether financial authorities should develop both the interlinking of domestic payment systems and CBDCs, or dismiss one of them and “focus all efforts to implement the holy grail as soon as possible.”

European Central Bank (ECB) has been working towards a project that would allow them to issue the digital euro. The investigation phase could take at least another year, as President Christine Lagarde suggested last month. In an article co-authored with Board Member Fabio Panetta, she also marked key principles of the CBDC’s realization. Then, a group of economists suggested that limiting users’ access to the upcoming currency is necessary to preserve the current banking system.

Do you agree with the ECB that central bank digital currencies can be the “holy grail” of cross-border payments? Comment below to let us know what you think.

Lubomir Tassav

Lubomir Tassev is a journalist from tech-savvy Eastern Europe who likes Hitchens’s quote: “Being a writer is what I am, rather than what I do.” Besides crypto, blockchain and fintech, international politics and economics are two other sources of inspiration.