The ECB does not think Bitcoin has emerged as a good option for cross-border payments and states that another solution is better. The financial institution says it has evaded equalitarian regulatory treatment regarding KYC and AML/CFT compliance.
The European Central Bank (ECB) recently published a paper examining the ideal model for cross-border payments. According to the study, central bank digital currencies (CBDCs) precede options like Bitcoin (BTC) and stablecoins.
The ECB Goes after the Holy Grail of Cross-Border Payments
The European Central Bank does not think Bitcoin and other cryptocurrencies emerged as great options for cross-border payments. The financial institution states that an excellent solution has some particular attributes that they believe BTC does not.
The ECB describes this possible means of exchange as the holy grail of cross-border payments. They say it is a solution allowing those transactions to be immediate, affordable, universal, and secure.
Nineteen countries of the European Union (EU) use the euro as their official currency. The ECB is not the only one with authorization to influence cryptocurrency laws, but it remains relevant in the EU.
According to the Study, BTC Has Potential for Cross-Border Payments
The working paper recognizes the potential of the pioneering cryptocurrency, highlighting its appropriate qualities. First, it indicates that its global reach is advantageous and notes that BTC needs no further interconnections. The ECB highlights those cross-border payments with the crypto asset work as efficiently as domestic payments.
Peer-to-peer (P2P) exchanges are also prominent among the notable merits of Bitcoin. However, the study describes the cryptocurrency as an expensive and wasteful technology, emphasizing the level of Proof of Work (PoW).
The ECB Thinks the Non-Regulation of Bitcoin is Disadvantageous
The document also raises that Bitcoin lacks a defined regulation. The ECB considers that cryptocurrencies are appealing mainly due to this problem.
The financial institution says that Bitcoin has circumvented equalitarian regulatory treatment regarding KYC and AML/CFT compliance. The study states that regulators will solve this situation while legal transactions with BTC experience an increase in costs.
The ECB states that the Bitcoin value proposition should not rely on a regulatory mismatch between payment solutions.
Finally, the ECB considers that central bank digital currencies are better for cross-border transactions. The financial institution suggests those crypto assets might be more compatible with foreign exchange conversions. They think combining a potential CBDC with a competitive level of currency conversion might lead to the Holy Grail.
However, There Could Be Challenges in a CBDC Solution
Since a CBDC-based solution combines feasibility with existing designs and systems, the ECB can maintain fiscal sovereignty. That way, it would ensure that local (fiat) currencies do not become obsolete.
However, the financial institution recognizes that this might also imply some difficulties. They include account routing and providing legal certainty at the same level as domestic payments. Adequate progress in AML/CFT compliance is also essential for a CBDC solution to succeed.
Regardless of these problems, the ECB believes a CDBC might be nearer the Holy Grail than the leading cryptocurrency. It is a matter of time before Bitcoin proves it is the best option for those interested in the crypto market.
By Alexander Salazar