XRP is predestined as a neutral bridge asset between CDBC

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• RippleNet and XRP are predestined to create a “network of networks” that will enhance the benefits of individual CBDCs.
  
• According to Ripple, open protocols and the creation of standards are a fundamental prerequisite for CBDCs to be interoperable around the world.

In a new blog post titled “Interoperability Will Determine CBDC Winners and Losers,” Ripple discussed the need for a networked central bank digital currency (CBDC) system. As the San Francisco-based company explained, the emergence of the COVID-19 pandemic has encouraged the use of contactless payments instead of cash.

The pandemic has changed the perspective of central banks around the world on issuing digital central bank currencies. According to Ripple, for CBDCs it is now a question of when, not if. On the other hand, central banks’ positions on digital assets in general have also changed, according to James Wallis, Ripple’s Vice President of Global Sales Strategy & Operations:

Governments that once viewed digital assets as a threat now see companies like Ripple are working closely with traditional financial institutions to develop efficient and innovative global payment solutions that directly benefit businesses and individuals.

While countries like China are expected to go into production with their CDBCs this year and focus on home use cases, a world of CDBC will require networking due to the global economy, Wallis said:

While focusing on home use cases is understandable to individual countries, we live in an increasingly interconnected global economy. It will be crucial to bridge the gap between the various CBDC initiatives with existing payment systems and other digital currencies to ensure they are successful on a global scale.

According to Ripple, the key is that every system must contain core functions that allow it to work seamlessly with other payment systems. In this sense, it is necessary to create open protocols and standards which, according to Wallis, can only be developed in collaboration with private actors such as payment service providers, financial institutions and financial companies in order to achieve interoperability.

RippleNet is predestined to create a “network of networks” that will significantly increase the benefits of individual CBDCs. Specifically, Ripple sees “neutral asset bridges” as the solution to “allow for a regular exchange of values ​​between different CBDCs without each having to solve the liquidity problems associated with cross-border transactions”.

This is where on-demand liquidity comes into play, which “allows financial institutions to transact in real time across multiple global markets using the XRP digital asset, and this solution can also support direct CBDC trading.” Commenting on the benefits of XRP, Wallis added:

XRP is faster, cheaper, and more scalable than any other digital asset, making it the ideal tool for linking two different currencies quickly and efficiently. Using a neutral and efficient digital asset like XRP also reduces the hegemonic influences of the most powerful nations and helps level the playing field in the international trade payment system.

However, it is critical that “every new CBDC is designed with interoperability in mind, using the kind of open standards and protocols that have been so successful in the globalization of information via the Internet,” Wallis said.

It is worth noting that Ripple has been in contact with numerous central banks in the past. For example, Ripple met with the Central Bank of Cambodia in mid-June. In May, Ripple held a meeting with the Central Bank of Brazil to discuss “institutional issues”. However, no details were disclosed on what specific issues were discussed.