A report from the European Central Bank (ECB) has found that central bank digital currencies (CBDCs) could be the “holy grail” for cross-border payments, potentially surpassing anything else on the market — including bitcoin and stablecoins.
The central bank’s report further found that of all the other technologies they considered for cross-border payments, Bitcoin was “the least trusted” and “inherently expensive and wasteful.”
Central Bank is very good
central Bank report Titled “Towards the Holy Grail of Cross-Border Payments,” a number of different options were examined. These payments, also known as remittances, remain slow, expensive and extremely inefficient.
“The holy grail of cross-border payments is a solution that allows cross-border payments to be instant, cheap, universal, and settled in a secure settlement medium,” the report was written by European Central Bank President Ulrich Bindseil ) co-authored. Typically used for market infrastructure and payments.
As of March 2022, global average cost The proportion of remittances to overseas was 6.09%. For some transfers, the cost of a single transaction can rise to around 20%. Therefore, the report weighs some potential alternatives and considers which might offer the best solution.
In Bitcoin, the report found a number of inherent flaws, describing its proof-of-work consensus mechanism as “inherently inefficient” and the token itself “inherently unstable in terms of purchasing power.” Additionally, it classifies cryptocurrencies as “a global illegal means of payment.”
It was ultimately concluded that Bitcoin is “unlikely to be the holy grail of cross-border payments”, while stablecoins are even “more problematic” than Bitcoin due to its “closed-loop” system and fragmentation.
After careful consideration of the merits of each option, the 59-page central bank report finally concludes that under the control of central banks such as the European Central Bank, CBDCs are the best and most efficient route to the “holy grail” of efficiency. There are possible ways. Payment.
Why search for “Holy Grail” now?
In 2020, the G20, an intergovernmental forum of the world’s 20 richest economies, declared that “improving cross-border payments” was the group’s top priority.
The mandate of the Financial Stability Board (FSB) is to work with the Committee on Payments and Market Infrastructures (CPMI) to identify current problems in the system and develop plans for improvement.
“Cross-border payments are at the heart of international trade and economic activity,” the FSB said in its 2021 analysis. “However, cross-border payments have long faced four particular challenges: high cost, slow speed, limited access and insufficient transparency.”
The reasons focus on the many costs and inefficiencies inherent in the traditional banking system. Fund remittances including operating costs, financial regulatory compliance costs, network costs, agency costs, foreign exchange costs and liquidity costs all exist within the framework the banking system has set for itself.
While this list of inefficiencies has plagued the system for years, there seems to be a real interest in addressing it head-on.
Curious people may now ask what prompted legacy financial systems to suddenly prioritize addressing longstanding problems they preside over themselves, but have failed to address for decades.
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