Central bank-backed digital currencies (CBDCs) are in the development stage around the world. Ripple believes these CBDCs are not prepared for international financial transfers and suggests XRP as a solution.
Little is currently moving in the legal battle between the U.S. Securities and Exchange Commission (SEC) and Ripple over XRP. So, in parallel, Ripple is trying to constructively bring itself back into the conversation with XRP and has published a whitepaper on the “Future of CBDCs.” CBDC is the abbreviation for Central Bank Digital Currency. In the EU, for example, France is strongly advocating an e-euro and is already running tests. Ripple sees this trend toward CBDCs as an opportunity to address central banks with a position paper and to point out predictable weaknesses in previous concepts for such state-backed digital currencies. Three points Ripple emphasizes in doing so:
1. Central banks may not be prepared to suddenly take on tasks such as citizen identity checks (KYC) and anti-money laundering measures.
2. According to Ripple, the plans for CBDCs known to date are national in scope, and the respective state e-currencies hardly take into account the need for cross-border money transfers.
3. There is also a risk that CBDCs will underestimate the fact that they need links to financial service providers that are not part of the traditional banking sector in order to be successful.
Thus, Ripple unsurprisingly concludes to tout its own network and XRP. In doing so, Ripple positions itself and XRP as neutral and proven in practice. In other words, what Ripple originally had in mind with XRP for the international financial transactions of commercial banks is now to prove its merits at the level of central banks. A few weeks ago, Ripple had already reported to be working on a pilot version of its XRP wallet, which also meets the demands of CBDCs.
Ripple and XRP with opportunities at CBDCs?
For all of Ripple’s renewed optimism – it’s hard to imagine the powerful central banks being persuaded by the push. One weighty reason for this is that since 1930, the central banks of the leading economies have created a body, the Bank for International Settlements (BIS), in which they discuss international money transfers and organize rules. The BIS is already developing CBDCs in Switzerland, paying explicit attention to cross-border usability. China, which could push ahead with an e-yuan, is a member of the BIS through its People’s Bank. Another argument against XRP as a bridge currency: XRP has never really been able to establish itself in this function in the private banking sector.
Bottom line: Ripple’s problem remains the SEC.
While some of the thoughts in Ripple’s whitepaper are thought-provoking, this push is unlikely to provide a way out of the legal pickle over XRP. Damage claims against Ripple over XRP exceed billions, and details about the business conduct of Ripple and its senior management are weighing on its image. Therefore, for the time being, the following remains true: As long as Ripple is in the spotlight beyond the U.S. because of alleged illegal trading in the sale of XRP, the company will hardly be successful in reinventing itself in other areas.
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