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Economist Spotlights Practicality of Cross-Border Bridges for Wholesale CBDCs

Retail CBDC testing discussed at 2023 Summer Davos while Ripple highlights real-time value transfer potential with CBDCs and launches CBDC Platform for financial inclusion.

Key Points

  • Retail CBDC testing discussed at 2023 Summer Davos, with countries like China, Sweden, India, Brazil, and Japan involved.
  • Ripple highlights real-time value transfer potential with CBDCs and launches CBDC Platform for financial inclusion.
  • Central bankers find reasons to introduce CBDCs despite existing payment systems.
  • Wholesale CBDC integration can enhance international payments and streamline cross-border transactions.

Eswar Prasad, an Indian-American economist and Tolani Senior Professor of International Trade Policy at Cornell University, recently discussed the testing of Retail Central Bank Digital Currencies (CBDCs) in several nations at the 2023 Summer Davos. Countries such as China, Sweden, India, Brazil, and Japan have conducted these tests, despite already having effective domestic retail payment systems in place. According to Prasad, the private sector’s development of more efficient payment transactions, like India’s Unified Payments Interface (UPI), has weakened the use case for retail CBDCs.

Ripple Highlights the Potential of Real-Time Value Transfer with CBDCs

In a report titled ‘The Future of CBDCs,’ Ripple highlights the potential of using a neutral bridge asset, such as XRP, for seamless and cost-effective real-time value transfer between different Central Bank Digital Currencies. This approach enables the creation of liquid CBDC pairs without the need for trades and promotes global competitiveness by lowering barriers for smaller market players. Ripple’s solution also optimizes payments for speed, scalability, affordability, and security.

Ripple Launches CBDC Platform to Promote Financial Inclusion

Ripple previously announced the launch of its CBDC Platform, which aims to expand access to financial services for the unbanked population worldwide. The platform allows governments and central banks to digitize their financial services and promote financial inclusion on a global scale. Ripple CTO David Schwartz emphasized the significance of the XRP Ledger, stating that it can interact with the CBDC Platform and utilize XRP as a bridge currency for cross-border payments.

Central Bankers Find Reasons to Introduce CBDCs

Professor Prasad pointed out that even though some countries may not necessarily require a CBDC, central bankers still have reasons to introduce them. For example, in China, a CBDC could facilitate payment system interoperability as well as ensure the robustness of the existing payment system. Central bankers also emphasize the idea of monetary sovereignty when discussing CBDCs.

Wholesale CBDC Integration Enhances International Payments

Prasad highlighted the inefficiencies of conventional cross-border payments, which are expensive, cumbersome, and difficult to track in real time. However, the Crypto revolution has brought about technological advancements that have made cross-border transactions faster and more seamless. The integration of wholesale CBDCs by central banks worldwide has the potential to further enhance international payments, benefiting economic migrants and streamlining remittances.

The Case for a Digital Renminbi and the Current Dominance of the US Dollar

While discussing the potential impact of a digital renminbi on international finance, Prasad expressed doubts about whether it would fundamentally alter the dynamics of the global financial system. He acknowledged that most international payments are already digital and recognized the dominance of the US dollar in influencing global markets. Prasad suggested that the current financial system may not be perfect or balanced due to the influence of a single currency.

XRP’s Role as a Bridge Currency and Stablecoin

Although Prasad did not directly mention XRP, the digital asset has been recognized as a possible bridge currency and even a stablecoin within the crypto community. The use of XRP for cross-border payments by central banks is a highly debated topic, both within the XRP Community and the wider crypto community.

In conclusion, the testing of retail CBDCs in various countries and Ripple’s promotion of real-time value transfer between CBDCs using XRP have sparked discussions on the future of digital currencies. Central bankers continue to explore the potential benefits of CBDCs, such as payment system interoperability and monetary sovereignty. Additionally, the integration of wholesale CBDCs has the potential to improve international payments and streamline cross-border transactions. The dominance of the US dollar and the role of XRP as a bridge currency remain important subjects of debate within the crypto community.