The The coming year promises to further accelerate crypto innovation. In doing so, the development of the Central Bank’s digital currencies (CBDC) will play an important role in the global transformation of payments and in maintaining the overall positive development of the sector.
The key to this will be how the central banks deal with interoperability and regulations for these CBDCs. A network of diverse but interoperable digital fiat currencies will help transcend the current system of today’s country-specific walled financial gardens that hinder cross-border payments, global e-commerce and financial inclusion efforts.
Existing talks about CBDCs have become even more urgent over the past year for a number of reasons, including pandemic-induced declines in cash use, the need for more effective ways to distribute government aid to unbanked citizens, and the impending adoption of the digital yuan in China. These considerations can lead to a faster and more dramatic transformation than was previously possible.
A new Ripple report released today examines the challenges and potential of CBDCs with this in mind and makes a number of key recommendations.
Similar to how common standards enabled the internet to become a global tool for information exchange, the paper advocates CBDCs to create open payment protocols and enable the smooth cross-border exchange of values.
This in turn creates faster, cheaper and more efficient payment infrastructures with lower failure rates. greater competition and access to global markets; improved access to financial services for population groups without banks; and the sovereignty of the government over monetary policy.
To realize this full potential, the 80% of central banks currently investigating CDBCs must accept interoperability. This universal interoperability depends on the use of open standards and neutral bridge assets optimized for speed, scalability and cost to free up capital and allow unrestricted movement of value between CBDCs.
Neutral bridge assets allow value to move smoothly between different CBDCs without each having to resolve the liquidity problems associated with cross-border transactions.
With RippleNet’s on-demand liquidity service, financial institutions can conduct real-time transactions across multiple global markets using the digital asset XRP as a bridge currency.
XRP is faster, cheaper, and more scalable than any other digital asset. This makes it the ideal instrument to quickly and efficiently link two different currencies. This solution can also support the direct exchange of CBDCs.
It is important that central banks cannot create these systems in isolation, otherwise they run the risk of rebuilding the silos that already exist today, which are affecting the global flow of value. Instead, the paper advocates a partnership with private institutions and networks that are currently developing these tools.
In short, Ripple sees CBDCs as the future of Fiat. Completely created and implemented, they can ensure both national and global success for the participating countries. Ripple is working closely with regulators and central banks around the world to develop the protocols and infrastructure to launch these CBDCs.
Download the Future of CBDCs Report today to learn more about Ripple’s recommendations for CBDCs.