“Central banks are pushing CBDC projects not because the system is broken, but because the plumbing of money is no longer fit for a digital-first economy.” — DNA Crypto.
It is no secret that central banks worldwide are collaborating with companies such as Ripple to launch their own CBDCs.
According to the IMF, more than 110 central banks have stepped toward CBDC development. At the same time, Ripple Labs Inc., a blockchain payments company, released a report stating that approximately 90% of central banks are actively developing their own digital currencies.
It is important to note that CBDCs are not entirely new; surprisingly, they have been around for almost three years. In 2020, China spearheaded the CBDC concept by conducting a broad-based retail test of the Chinese digital Yuan. The report titled “The Future of Fiat” by Ripple gives several reasons why it believes many central banks will embrace CBDCs. One of the firm’s main reasons highlighted was improved payment efficiency.
Today, digital payment methods are rapidly replacing cash payments, especially in developed nations. The advent of blockchain technology exposed shortcomings in digital payment methods, including high transaction costs and slow processing times. Typically, an overseas transaction via digital payment takes days to complete, and, worse still, a cash payment takes longer.
However, with blockchain technology, these transactions typically take seconds to minutes to complete. Given its significant advantages, it has been difficult for users to reject blockchain technology and thus threaten legal tender in many nations. CBDCs can improve a country’s overall payment landscape, particularly given recent global advancements.
Ripple has reported that the introduction of CBDCs will improve national competitiveness. In addition, the firm believes CBDCs will help financial institutions reposition themselves and build greater trust among citizens.
Ripple and CBDCs: How?
Over the years, Ripple has grown into one of the most dominant blockchain payment ecosystems in the market. Throughout its lifetime, the firm has developed a simple, engaging solution built on XRPLedger. Central banks can use this ledger to deploy their own CBDCs. Ripple claims its CBDC hosting platform will offer stability, resilience, and security. The firm adds that central banks can use its XRP-proven ledger to build trust. This will ensure consistent top performance and enforce privacy and security. Moreover, Ripple announced that XRPLedger would enable CBDCs to create wholesale products for use by banks, the public, and fintech.
Another significant benefit for central banks adopting XRPLedger is interoperability and overlay services. The CBDC development will also be sustainable as it will be based on Ripple’s energy-efficient protocol. After highlighting its ability to support CBDC and Stablecoin development efficiently, Ripple noted its strategic plan with Bhutan to create the digital Ngultrum. Currently, Ripple competes with firms such as Visa and Mastercard, which are actively seeking solutions to support central banks in CBDC development.
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Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.
