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European Central Bank favors CBDCs over BTC for cross-border payments

02-Aug-2022 By: Shikha Jha
European Central Ban

The European Central Bank (ECB) recently carried out

 a study to determine the ideal cross-border payment method, and the results named central bank digital currencies (CBDCs) the winner above competitors including banking, Bitcoin (BTC), and stablecoins, among others.

The ECB is interested in establishing the optimum cross-border payment option because it is the central bank of the 19 European Union nations that have embraced the euro. According to the study, "Towards the Holy Grail of Cross-Border Payments," Bitcoin (BTC) is the most prominent unbacked crypto asset.

EBC's view of Bitcoin as a problematic cross-border payment method boils down to the extremely volatile asset's settlement mechanism, adding that:

“Since the Bitcoin network only settles once every ten minutes or so, value effects are already manifesting at the time of settlement, which makes Bitcoin payments more challenging.”

While the study emphasized Bitcoin's inherent scaling and speed issues, it failed to take into account the timely upgrades — Taproot and Lightning Network — that improve network performance, leading to the conclusion that the underlying technology (particularly its "proof-of-work" layer) is inherently expensive and wasteful.

On the other hand, CBDCs were acknowledged by the ECB as a superior match for cross-border payments due to their improved compatibility with forex exchange (FX) conversions. The two significant advantages highlighted in this respect are the maintenance of monetary sovereignty and the simplicity of immediate payments via intermediaries such as central banks.

Read also: Cryptocurrency price update: BITCOIN PRICE PREDICTION: Why BTC Could Return to $22K as Bitcoin Price Reacts Bearishly


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