The European Central Bank (ECB) has published a new report indicating that Central Bank Digital Currencies (CBDC) could be the best solution for remittances abroad. The study added that CBDCs outperform similar payment methods such as Bitcoin and the stable coins. The ECB report also said that its study of other credible alternatives to CBDCs shows that Bitcoin is expensive and wasteful and is the least credible. The report, known as “Towards the Holy Grail of cross-border payments”, looked at many options for these payments, also known as remittances. However, he said that CBDCs are the only option that is efficient and not slow or expensive. The report further states: “A payment solution that enables immediate, universal, cheap and secure settlement is the holy grail of cross-border payments.” The ECB’s director general for payments and market infrastructure, Ulrich Bindseil, is one of the authors of the report.
Where are the stablecoins located?
As of March this year, the average cost of remittances globally was 6.09%. There are some remittances where the cost of a transaction can increase up to 20 percent. Therefore, the report compared several options to determine the best one. The study found that Bitcoin had multiple inherent flaws. One such flaw was its proof-of-work mechanism. Therefore, the report said that Bitcoin was extremely inefficient and that the price of the currency is unstable, making it impractical for this type of payment. Furthermore, it ranks the digital asset as the favorite method for fraudulent financial transactions. Therefore, the report concluded that Bitcoin could not be the best solution for remittances abroad. He also ruled out stablecoins as an option, stating that their closed-loop systems and fragmentation make them more problematic than Bitcoin. In its recommendation, the 59-page report said that CBDC is the best option for cross-border payments. However, they must be under the supervision of central banks such as the European central bank.
Improve cross-border payments
Following one of its meetings two years ago, the need for an efficient cross-border payment system became a top priority for the G20. The G20 is a forum for the 20 most prosperous economies in the world. Since then, the bank’s financial stability board and its payments and market infrastructure (CPM) committee have been working together. His first responsibility was to discover problems related to the current system. Then develop a plan that solves these problems. A 2021 analysis by the FSB states that cross-border payments are the cornerstone of international trade and economic operations. However, four factors have been causing a problem for cross-border payments for a long time. Those factors are insufficient transparency, high costs, limited access and low speed. The analysis found that the traditional banking system is the main cause of these problems. Multiple costs persist within the conventional banking system that hinder cross-border payments. They include operating, currency, liquidity, network, correspondent and financial regulatory compliance costs. It is worth noting that these costs have been an issue prior to 2020. However, the G20 now seems to have a strong desire to find a permanent solution to them.