Central bank digital currencies (CBDCs) are becoming increasingly popular as more countries globally consider developing and issuing them. However, a fundamental problem to CBDCs is the interoperability, as it is already hard to conduct cross-border transactions with the current financial system. Ripple seems to have the answer to this problem and believes XRP coin can serve as a neutral bridge for CBDCs.
CBDCs are crucial to the survival of the fiat system
Ripple Labs published a whitepaper titled ‘The Future of CBDCs.’ The report looked at CBDCs and why central banks need to issue them. According to Ripple Labs, blockchain technology has made it easy to carry out global transactions. Thus, the reason why central banks need to issue their CBDCs.
However, Ripple believes that the CBDCs will take different shapes due to each country’s various demands. This will make it harder to achieve interoperability. “It is likely that we will end up with a world of diverse CBDCs, which makes interoperability critical. Though most Central Banks are focused on solving domestic problems, the global nature of trade and finance means cross-border coordination must be baked into the original recipe of each CBDC,” Ripple added.
The whitepaper pointed out that the internet became a global tool for the exchange of information because the world agreed to use common standards to build the internet. Ripple believes central banks need to adopt the same method to enable CBDCs to gain interoperability.
“Without this crucial interoperability, Central Banks will be putting limits on their CBDC’s success while compromising the future of their financial system – instead of developing a more effective and inclusive evolution of money,” Ripple said.
XRP can link CBDCs
For central banks to solve the issue of interoperability, they will need a neutral bridge connecting the CBDCs. Ripple believes XRP coin can play that role perfectly. Ripple stated that “A neutral bridge asset can support healthy, alternative liquidity markets that will allow for frictionless and cost-effective value movement between various CBDCs in real-time.”
According to Ripple, XRP is also used by private financial institutions for foreign exchange activities. Hence, making it the natural digital currency to serve as the neutral bridge linking the CBDCs.
Ripple has been embroiled in legal problems with the SEC after the company’s executives were accused of selling XRP as securities. The case continues to drag on as both parties present strong arguments.