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Ripple Touts XRP as a Neutral Bridge Currency for CBDCs

2 mins
Updated by Anirudh Tiwari
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In Brief

  • Ripple has released a whitepaper advocating for central banks to deploy digital currencies (CBDCs).
  • Ripple says native token XRP is an example of a neutral bridge currency between CBDCs.
  • Judge has dropped a “bombshell” in Ripple’s case with the SEC.
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Ripple Labs has released a whitepaper entitled ‘The Future of CBDCs’. The whitepaper addresses central bank digital currencies (CBDCs) and explains why central banks should issue them.

The Ripple whitepaper begins by stating that blockchains are enabling seamless, instant global payments. It is only natural that central banks will need to adopt a digital currency in light of this. However, these CBDC will likely take different forms based on the specific needs of each issuing authority. As a consequence, interoperability will be critical. This will require the use of open payment protocols and neutral bridge assets.

XRP as a Neutral Bridge Asset

Despite the primarily domestic concerns of central banks, CBDCs will still be necessary for global transactions. “Without seamless cross-border functionality, most CBDC projects will significantly underachieve their potential,” the whitepaper explains. Just as the early internet agreed on common protocols, so should CBDCs.

This interoperability presents challenges that already exist for cross-border transactions. Prefunded currency accounts will also be required, especially if real-time foreign exchanges are expected. However, central banks will still want to avoid the costs and risks that come with the liquidity issue.

“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,” the whitepaper declares. Since companies have already used XRP in foreign exchange capacities, the whitepaper says it is natural to play this role for CBDCs. 

Earlier this month, Ripple announced that it is testing a private version of its XRP Ledger to facilitate the issuance of CBDCs. XRP has nearly tripled since it fell after Ripple issues with the US Securities and Exchange Commission began.

Judge Drops a “Bombshell”

In December, the SEC filed a case against Ripple and executives Chris Larsen and Brad Garlinghouse, claiming XRP is a security and accusing them of selling unregistered securities. In the most recent court session, the presiding Judge dropped a “bombshell.”  

“My understanding about XRP is that not only does it have a currency value, but it has a utility, and that utility distinguishes it from Bitcoin and Ether,” she said. As currencies and securities are distinct, the SEC argument that XRP is a security may no longer hold water. 

Additionally, when the Judge asked whether anyone who sold XRP was selling illegal securities, the SEC lawyer said no. “Under Section 4, only Ripple and affiliates of Ripple can have sold XRP illegally,” he explained. This could set a precedent that would enable exchanges to begin listing XRP again.

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Nicholas Pongratz
Nick is a data scientist who teaches economics and communication in Budapest, Hungary, where he received a BA in Political Science and Economics and an MSc in Business Analytics from CEU. He has been writing about cryptocurrency and blockchain technology since 2018, and is intrigued by its potential economic and political usage.