The European Central Bank has a vested interest in seeing the best cross-border payment system. This comes from its position as the central bank of 19 EU countries that use the Euro.
The Preference for CBDCs
The central bank recently carried out a study where it tried to find out the best method for payment across borders. The study returned with CBDCs as the best payment option. It is said to be preferred above Bitcoin, banking services, and even stablecoins among a host of others.
The ECB is doing this in other to adequately meet the needs of 19 countries that use the Euro. A lasting solution to cross-border payment is becoming primary among the bank’s goals as it is their central bank.
The study which was tagged, “The Holy Grail of Cross-Border Payments,” called Bitcoin a prominent but unbacked cryptocurrency. The ECB’s perspective of Bitcoin as a bad payment system for cross-border settlement stems from its settlement mechanism.
The study says settlement on Bitcoin’s network happens about every ten minutes. That makes Bitcoin payment complicated because valuation is being materialized already at that time.
Although the study talked about Bitcoin’s speed and scalability issues, it did not mention the network’s time upgrades. There were Lightning Network and Taproot upgrades that boosted the Bitcoin network’s performance. The study simply concluded that the technology is expensive.
Gov. Lowe’s Different View
But the ECB sees CBDCs as better options for cross-border settlements. One of the reasons is the belief that it is more compatible with foreign exchanges. The bank listed two major advantages in this regard being that it preserves countries’ monetary sovereignty and there is the ease of immediate payment.
Contrary to the ECB’s views, however, the Governor of Australia’s central bank, Philip Lowe shared his views. He strongly believes a privatized solution will serve better for crypto so far risks are reduced via regulations.
Lowe stated that mitigating crypto-related risks can be carried out by strong regulations and government support. He added that if crypto tokens are going to be widely used by communities, they will need backing from the state. Or they will have to be regulated in the same way bank deposits were regulated.
In Governor Lowe’s opinion, private companies can innovate the best features of cryptocurrencies better than central banks.