The claim that XRP is integral to the future of banking and cross-border payments is a contentious topic in the cryptocurrency space. Proponents argue XRP offers unparalleled speed, scalability, and cost-efficiency for banks, while critics believe banks have no need for XRP due to existing and emerging technologies. Here’s a detailed exploration of why banks don’t necessarily need XRP, with points elaborated, common criticisms addressed, and counterarguments provided.

1. Banks Already Have Effective Cross-Border Payment Solutions (SWIFT & CBDCs)

• Explanation:
  The SWIFT network, with its GPI (Global Payments Innovation) upgrade, has significantly improved speed and transparency in cross-border transactions. Additionally, Central Bank Digital Currencies (CBDCs) are being actively developed by numerous countries as a native digital currency solution that doesn’t require intermediaries like XRP.

• Criticism:
  SWIFT and traditional banking systems are slow, expensive, and opaque compared to blockchain-based solutions. RippleNet could complement these systems rather than replace them.

• Counterpoint:
  While SWIFT was historically slow, the GPI upgrade has reduced settlement times to as little as a few minutes in many cases. CBDCs also promise near-instant transactions within their networks without requiring a bridge token like XRP. Moreover, banks prefer systems they control directly, avoiding reliance on a volatile, publicly traded asset like XRP.

2. Banks Avoid Volatility and Regulatory Risks

• Explanation:
  XRP’s price volatility is a significant deterrent for banks, which prioritize stability and predictability in their operations. Additionally, regulatory scrutiny surrounding XRP’s classification as a security in some jurisdictions adds further risk.

• Criticism:
  XRP’s volatility is mitigated by the short holding periods during transactions, and Ripple offers solutions to address compliance concerns.

• Counterpoint:
  Even short holding periods introduce unnecessary risk compared to using stable assets or direct fiat pairs. Banks are more inclined to use private blockchains or native CBDCs that avoid such risks entirely. Regulatory clarity in the U.S. and globally remains inconsistent, making XRP adoption a legal gray area for risk-averse institutions.

3. RippleNet Doesn’t Require XRP

• Explanation:
  RippleNet, Ripple’s network for cross-border payments, is agnostic to XRP. It can function solely as a messaging and settlement system using fiat currencies, similar to SWIFT. Many banks using RippleNet have opted out of XRP altogether.

• Criticism:
  Using XRP could significantly enhance the efficiency of RippleNet by providing liquidity on-demand.

• Counterpoint:
  While on-demand liquidity (ODL) with XRP can reduce pre-funded nostro/vostro accounts, most major banks already have sufficient liquidity arrangements. They also prefer direct relationships with correspondent banks or emerging stablecoins, which are more aligned with their operational models.

4. Banks Prefer Proprietary or Permissioned Networks

• Explanation:
  Banks are more likely to adopt proprietary or permissioned blockchains (e.g., JPM Coin, Hyperledger, or R3’s Corda) where they retain full control over the network. These networks can be tailored to their specific needs and don’t rely on public assets like XRP.

• Criticism:
  Permissioned blockchains reduce interoperability and fail to achieve the decentralized benefits of public blockchains like XRP Ledger.

• Counterpoint:
  Interoperability is achievable through standardized APIs and partnerships without relying on public blockchains. Moreover, banks prioritize control and regulatory compliance over decentralization, which they view as a disadvantage rather than a benefit.

5. Ripple’s Lack of Bank Adoption for XRP

• Explanation:
  Despite Ripple’s claims of partnerships with hundreds of financial institutions, very few, if any, are actively using XRP in production environments. Most partnerships involve RippleNet without XRP integration.

• Criticism:
  Banks are cautious but may adopt XRP as regulatory clarity improves and as Ripple demonstrates its utility through pilot programs.

• Counterpoint:
  Over a decade since XRP’s inception, the lack of large-scale adoption by banks suggests systemic disinterest rather than caution. Banks are actively investing in other blockchain technologies, indicating they see better options for innovation.

6. Banks Can Leverage Stablecoins and Other Digital Assets

• Explanation:
  Stablecoins, such as USDC and USDT, offer a stable value and widespread adoption, making them more attractive for cross-border payments. These coins operate on established blockchains like Ethereum, Solana, and others, providing liquidity and settlement options without XRP.

• Criticism:
  Stablecoins lack the scalability and specialized design of XRP for cross-border payments.

• Counterpoint:
  Stablecoins have proven scalability and are integrated into a wide range of payment platforms and financial services. Additionally, their stable value eliminates the risk of price volatility. Banks can also issue their own stablecoins for even greater control.

7. Banks Are Invested in Competing Technologies

• Explanation:
  Major banks and financial institutions are heavily invested in developing their own blockchain solutions or partnering with projects like R3 Corda, Hyperledger, and SWIFT’s gpi-Link. These solutions directly compete with Ripple and XRP.

• Criticism:
  Competing technologies are fragmented, whereas XRP provides a unified global solution.

• Counterpoint:
  Banks don’t require a single global solution. Fragmentation allows them to choose technologies tailored to their needs. Consortiums like SWIFT and R3 ensure interoperability across different platforms, making XRP unnecessary.

Conclusion

Banks do not need XRP because they already have access to effective, scalable, and regulatory-compliant solutions for cross-border payments. Ripple’s XRP may offer theoretical benefits, but its real-world adoption by banks has been minimal due to volatility, regulatory risks, and competition from more practical alternatives. The future of banking is likely to revolve around CBDCs, permissioned blockchains, and stablecoins, not public cryptocurrencies like XRP.

Discussion Questions

1. Do you believe XRP can overcome the barriers discussed above? Why or why not?
2. How do you see CBDCs and stablecoins impacting Ripple’s vision for XRP?
3. Are banks likely to adopt public blockchains in the future, or will permissioned solutions dominate?

Let’s discuss below!