Current AffairsEconomics

Central Bank Digital Currency (CBDC)

The Reserve Bank of India (RBI) will introduce its own version of Central Bank Digital Currency (CBDC) in a phased manner
  • The RBI has been exploring the pros and cons of the introduction of CBDCs.
  • The Indian central bank will also draw upon the lessons from other countries that are in various stages of introducing such a digital fiat currency.
  • In particular, the Indian central bank would evaluate the scope of CBDCs — whether they should be used in retail payments or also in wholesale payments.
  • Whether the underlying technology should vary based on use cases is being debated at the central bank.
  • Besides, other modalities such as token-based or account-based validation mechanism, distribution architecture (direct issuance by the RBI or through banks), and what would be the degree of anonymity granted for such CBDCs are also being determined at the RBI.

 About  Central Bank Digital Currency

  • It is a digital version of a country’s fiat currency (such as a digital rupee, digital dollar or a digital euro) and will be made digitally available to its users.
  • It will be issued and guaranteed by the central bank.
  • It will be distinct from the existing central bank money that exists as banknotes and accounts held by financial institutions (mostly banks) with the central bank.
  • CBDC is distinguished from the existing forms of private money such as e-money (money stored in prepaid wallets) or bank deposits, that can be transferred electronically using cards or mobile payment applications.
  • A CBDC is different from cryptocurrencies and stable coins which are issued by private entities. Unlike CBDCs which will be a liability of the central bank, cryptocurrencies are no one’s liability and their value is derived from the expectation that they will be valued and used by other.
Tags: Current Affairs, Economics

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