Central Bank Digital Currencies (CBDCs) are Banks’ way of responding positively to Blockchain Technology in 2020. China has been far ahead of many countries as its CBDC has passed 4 million transactions corresponding to $300 million in the test phase. This is according to Yi Gang, the Governor of People’s Bank of China (PBOC) on Tuesday, November 2nd during the Hong Kong Fintech Week. He however identified that China’s CBDC is still in its infancy and requires more complete legal requirements and regulatory framework that focus on transparency.
PBOC recently released a draft law to prohibit the creation of yuan-pegged cryptocurrencies. It is currently unknown how China is planning to enhance interoperability with CBDCs from other countries. It’s proposed regulation to prohibit the creation of yuan-pegged crypto may be a limiting factor for its interoperability with other blockchains.
Other countries are beginning to wake up and make research on the potential of CBDCs. Many Government and government bodies are making moves to collaborate with crypto companies to help research how CBDC will aid remittance. It is believed that since electronic payments gained a wide adoption very quickly, CBDCs will follow suit. This is because it is a form of electronic money but with security, fast settlement, and low transaction fee at its core.
According to a recent Ripple insight, it is believed that the best CBDC will be the one which will encourage interoperability with other country’s. The challenge will be to find a neutral ground to interconnect CBDCs else they will be no better than e-payments. Ripple On-Demand Liquidity (ODL) is designed to be the neutral ground and bridge to seamlessly interconnect CBDCs:
“RippleNet’s On-Demand Liquidity service allows financial institutions to transact in real-time across multiple global markets using the digital asset XRP and such a solution can also support the direct exchange of CBDCs. XRP is faster, less costly and more scalable than any other digital asset, making it the ideal instrument in bridging two different currencies quickly and efficiently.”
Ripple believes that there will be no particular digital asset to rule them all. It continues to work to connect central banks from all over the world. Thus it aids the fiat system instead of seeking to eliminate it as in Bitcoin:
“We don’t believe there will be one digital asset to rule them all, nor do we think that a dominant digital currency, whether decentralized or government-backed, is a good thing for the global economy. Instead, we will continue to work with central banks globally to create an environment where CBDCs and independent digital assets co-exist and complement each other, achieving an Internet of Value where money moves as freely as information does today.”
Ayobami Abiola, a writer, and cryptocurrency enthusiast believe that RippleNet’s ODL will become very useful in interconnecting CBDCs. He opined:
“#Ripple encourages the #interoperability of the #fiat systems. There is no doubt that it will find its actual calling in interconnecting #CBDCs from different countries. @Ripple NET #ODL is moving mountains and leveling valleys. #XRP”