Central bank digital currencies (CBDC), which have the potential to outperform everything else on the market, including Bitcoin and stablecoins, have been identified as the “holy grail” of cross-border payments, according to a paper by the European Central Bank (ECB).
The central bank investigation also discovered that Bitcoin was the “least credible” and “inherently expensive and wasteful” of all the other technologies they investigated for cross-border payments.
Central Bank Digital Currencies (CBDC)
Researchers at the central bank examined several solutions in their study titled “Towards The Holy Grail of Cross-Border Payments.” These transfers, sometimes known as remittances, continue to be cumbersome, expensive, and ineffective. According to the report, which Ulrich Bindseil, the director-general for market infrastructure and payments at the European Central Bank, co-authored,
“The holy grail of cross-border payments is a solution allowing cross-border payments to be immediate, cheap, universal, and settled in a secure settlement medium.”
The average cost of sending money abroad as of March 2022 was 6.09%. The price of a single transfer can increase by as much as 20% in rare cases. Therefore, the paper compared various prospective solutions and evaluated which would offer the best one.
The Proof-of-Work (PoW) consensus mechanism used by Bitcoin is “inherently inefficient;” the coin itself is “inherently unstable in terms of its purchasing power,” according to the analysis, which also discovered several other problems in the system. The cryptocurrency is also classified as a “global means of criminal payment” by this statement.
Bitcoin is “unlikely to be the holy grail of cross-border payments,” the article’s conclusion reads. And stablecoins are “more troublesome” than Bitcoin because of their fragmentation and “closed loop” mechanisms. A CBDC controlled by central banks like the European Central Bank is the best and most likely route towards the “holy grail” of efficient payments, according to the 59-page major bank paper, which meticulously weighed the advantages of each alternative.