- President Trump’s CBDC ban has raised concerns about its possible repercussions on crypto assets, especially XRP and the dollar-backed RLUSD.
- For clarity, the president’s EO does not affect the aforementioned digital assets.
President Donald Trump has yet to log a week of work in the Oval Office. However, he has already made sweeping changes in the US’ economic, social, political, and foreign policies.
Recently, he signed another executive order (EO) banning the creation, issuance, or promotion of central bank digital currencies (CBDCs) within the US jurisdiction or abroad. The EO, titled “Strengthening American Leadership In Digital Financial Technology,” enshrined the new CBDC ban. The proclamation also terminates any ongoing efforts to establish such financial instruments.
The EO defined a CBDC as “a form of digital money or monetary value, denominated in the national unit of account, that is a direct liability of the central bank.”
With Trump’s CBDC ban, some crypto community members have raised concerns regarding its potential effects on XRP, particularly the US dollar-based Ripple USD (RLUSC) stablecoin.
CBDC Ban Negative Effects on XRP and RLUSD
Trump’s CBDC ban does not negatively affect both forms of cryptocurrencies. Besides the precise wording of the EO, which only covers central bank-issued digital currencies, there is a clear distinction between CBDCs and the classification of XRP and RLUSD.
XRP is a form of digital currency that’s neither backed nor reliant on fiat currencies, central banks, and, more so, CBDCs. Meanwhile, RLUSD is a virtual currency backed by US dollar-based physical assets.
XRP Vs. CBDC
XRP is a decentralized digital asset with a decentralized infrastructure. It operates on the XRP Ledger (XRPL) public blockchain with no central authority controlling the network. There are some debates about the degree of control that Ripple, a company associated with the crypto, has in the XRPL ecosystem due to its massive holdings of the asset. However, we will leave the merits of these arguments to future topics.
In addition, as Ripple pointed out earlier, XRP is designed for faster, more efficient, and cheaper cross-border payments. Its developers tailored it for institutions, such as banks and payment firms. It has nothing to do with the central bank, and its alignment with Bitcoin (BTC) keeps it out of the US Securities and Exchange Commission’s (SEC) overarching reach.
RLUSD Vs. CBDC
On the other hand, the RLUSD also operates within the XRPL and Ethereum (ETH) public and decentralized blockchains. The stablecoin Ripple issues via XRPL uses up XRP for transaction fees. The network then burns the token it collects as fees to help the deflationary mechanism of the XRPL token. Hence, RLUSD’s effects on XRP are minuscule, to say the least.
RLUSD’s stability, liquidity, and reliability are all thanks to its physical backing. Ripple has reinforced the stablecoin’s economy with segregated US dollar deposits, US government bonds, and cash equivalents. Obviously, its backing does not include CBDCs since central banks are still exploring their implementation, and the US has yet to establish one. Nonetheless, its developers never designed RLUSD to hold a CBDC as a reserve.
Furthermore, a glaring difference exists between a CBDC and a stablecoin like the RLUSD—their issuer. A country’s central bank issues the former, while a private entity issues the latter.
