The ECB claims that CBDCs are the best method for cross-border payments

• Financial

A recent study conducted by the European Central Bank (ECB) to identify the ultimate cross-border payment medium crowned Central Bank Digital Currency (CBDC) as the winner over competitors including banking, Bitcoin and stablecoins, among others.

The ECB's interest in finding the best solution for cross-border payments stems from the fact that it serves as the central bank of the 19 European Union countries that have adopted the euro. The study, “Towards the Holy Grail of Cross-Border Payments,” mentions Bitcoin as the most prominent uncovered crypto asset.

The EBC's opinion on Bitcoin as a poor cross-border payment system boils down to the settlement mechanism of this highly volatile asset, adding that: “Since settlement in the Bitcoin network only happens every ten minutes, valuation effects already materialize at the time of settlement, making Bitcoin payments actually more complicated”.

While the study highlighted bitcoin's inherent scaling and speed issues, it did not account for upgrades, Taproot and the Lightning Network, which improve network performance, concluding that "The underlying technology (and especially its proof-of-work consensus mechanism") is inherently expensive and wasteful ”.

On the other hand, the ECB has recognized CBDCs as suitable for cross-border payments due to their greater compatibility with foreign exchange conversions. The two main advantages highlighted in this regard are the preservation of monetary sovereignty and the ease of instant payments through intermediaries such as central banks.

In contrast to the ECB's reliance on CBDCs, Australian central bank governor Phillip Lowe believes a private solution "will be better" for cryptocurrencies as long as risks are mitigated through regulation. Mitigating the risks associated with cryptocurrency adoption can be addressed through strict regulations and government support, Lowe said, adding: “If these tokens are going to be widely used in the community, they will need to be supported by the government or they will need to be regulated just like we regulate bank deposits”.

According to Lowe, private companies are “better than the central bank at innovating” the best features for cryptocurrencies.