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David Schwartz, CTO of Ripple, recently gave a lecture in Berkeley, a conference where he shared his views on how he sees XRP and XRPL fit into the bigger picture of a world with CBDC. CBDCs have been very much in vogue recently, especially since US Fed Chairman Powell confirmed that the US is looking into the digital dollar experiment. Speaking of CBDC, Schwartz said,
“CBDCs can make internal settlements faster, more reliable and cheaper.”
This is an interesting observation to make many expect the speed and economy of transactions to be even better in these cases. Indeed, the same sentiment was shared by Binance’s CZ in a recent interview,
“If there is a government pushing another cryptocurrency that is even more open, freer, has fewer restrictions than Bitcoin, and is faster and cheaper to use, then this would threaten Bitcoin.”
While this may be true to some extent, the high levels of centralization associated with the issuance of CBDC and a host of other factors may not see it replace popular crypto-assets at present. “CBDCs are not going to usurp the role of universal settlement assets,” Schwartz said, with Ripple’s CTO stating that CBDCs could indeed face the same problems as Forex with reserve currencies today.
According to him, a CBDC by definition will carry the same capital controls, trade deals and policies as its corresponding fiat currency. Ergo, countries are unlikely to want to deal with another country’s capital controls.
The CTO also said that a central bank will not issue a digital asset that behaves like BTC, ETH and XRP, all of which are neutral assets that should remain free from judicial scrutiny.
I don’t think there will be a world fiat anytime soon, so even with stablecoins there will be many. To create liquidity between CBDCs, other stablecoins and new tokenized asset classes (securities, DeFi) there is room for a neutral and jurisdictionless asset.
– David Schwartz (@JoelKatz) 19 October 2020
In a world where countries could issue their own CBDCs, Schwartz went on to stress the need for a “neutral asset” that would facilitate cross-border interoperability and act as a bridge between different CBDCs. Otherwise, cash will be split between CBDC’s N ^ 2 pairs, he warned.
Although Bitcoin was touted as the initial interoperability solution, today there are over 1500 cryptocurrencies that don’t interact and nothing that isn’t cryptographic interacts with BTC.
Everyone is required to join a network that requires “too many sacrifices too quickly,” according to Schwartz.
Unsurprisingly, he pointed to XRP and XRPL as solutions to this problem. He said they were built specifically for this role and would serve as a neutral asset and bridge to CBDC, stablecoins and other assets.
“The XRP Ledger can’t handle all the payments in the world and I’m not proposing a” one network “solution. It’s totally unrealistic. People want different things and have different problems. But XRP can be the hub or backbone that provides the fast international settlement piece. It will not solve the last mile problem, but it will help with interoperability and concentration of liquidity so that companies don’t have to keep funds in every payment system. “
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