{"id":7538,"date":"2022-08-23T00:00:00","date_gmt":"2022-08-23T00:00:00","guid":{"rendered":"https:\/\/www.nextias.com\/current_affairs\/uncategorized\/23-08-2022\/central-bank-digital-currency-cbdc-2\/"},"modified":"2025-09-19T18:22:29","modified_gmt":"2025-09-19T12:52:29","slug":"central-bank-digital-currency-cbdc-2","status":"publish","type":"post","link":"https:\/\/www.nextias.com\/ca\/current-affairs\/23-08-2022\/central-bank-digital-currency-cbdc-2","title":{"rendered":"Central Bank Digital Currency (CBDC"},"content":{"rendered":"<p style=\"text-align:justify\"><span style=\"font-size:13pt\"><span style=\"font-family:\"Book Antiqua\",serif\"><strong>In News<\/strong><\/span><\/span><\/p>\n<ul>\n<li style=\"list-style-type:disc\"><span style=\"font-size:12pt\">Recent Report informs that the Reserve Bank of India\u2019s (RBI) digital rupee \u2014 the <\/span><span style=\"font-size:12pt\"><strong>Central Bank Digital Currency (CBDC)<\/strong><\/span><span style=\"font-size:12pt\"> \u2014 may be introduced in phases beginning with wholesale businesses in the current financial year.<\/span><\/li>\n<\/ul>\n<p style=\"text-align:justify\"><span style=\"font-size:13pt\"><span style=\"font-family:\"Book Antiqua\",serif\"><strong>Key Points<\/strong><\/span><\/span><\/p>\n<ul>\n<li style=\"list-style-type:disc\"><span style=\"font-size:12pt\">In the <\/span><span style=\"font-size:12pt\"><strong>Budgetary Speech<\/strong><\/span><span style=\"font-size:12pt\"> it was stated that the central bank would launch the CBDC in the financial year 2022-23.\u00a0<\/span><\/li>\n<li style=\"list-style-type:disc\"><span style=\"font-size:12pt\"><strong>RBI\u2019s stand: <\/strong><\/span><span style=\"font-size:12pt\">It has repeatedly voiced its opposition to private digital currencies, and had proposed to the government to widen the scope of the paper rupee to include currency in a digital form.<\/span><\/li>\n<li style=\"list-style-type:disc\"><span style=\"font-size:12pt\"><strong>RBI had proposed amendments<\/strong><\/span><span style=\"font-size:12pt\"> to the <\/span><span style=\"font-size:12pt\"><strong>Reserve Bank of India Act, 1934<\/strong><\/span><span style=\"font-size:12pt\">, which would enable it to launch a CBDC.\u00a0<\/span>\n<ul>\n<li style=\"list-style-type:circle\"><span style=\"font-size:12pt\">Government received a proposal from the RBI in October 2021 for amendment to the Reserve Bank of India Act, 1934 to enhance the scope of the definition of \u2018bank note\u2019 to include currency in digital form.\u00a0<\/span><\/li>\n<li style=\"list-style-type:circle\"><span style=\"font-size:12pt\">RBI has been examining use cases and working out a phased implementation strategy for introduction of CBDC with little or no disruption<\/span><\/li>\n<\/ul>\n<\/li>\n<li style=\"list-style-type:disc\"><span style=\"font-size:12pt\"><strong>Government\u2019s Plan: <\/strong><\/span><span style=\"font-size:12pt\">The government had been planning at the time to introduce a Bill in Parliament that would <\/span><span style=\"font-size:12pt\"><strong>prohibit all private cryptocurrencies<\/strong><\/span><span style=\"font-size:12pt\"> in India with certain exceptions.<\/span><\/li>\n<\/ul>\n<p style=\"text-align:justify\"><span style=\"font-size:13pt\"><span style=\"font-family:\"Book Antiqua\",serif\"><strong>Central Bank Digital Currency (CBDC)<\/strong><\/span><\/span><\/p>\n<ul>\n<li style=\"list-style-type:disc\"><span style=\"font-size:12pt\"><span style=\"font-family:\"Book Antiqua\",serif\">Definition:<\/span><\/span>\n<ul>\n<li style=\"list-style-type:circle\"><span style=\"font-size:12pt\"><span style=\"font-family:\"Book Antiqua\",serif\">CBDC is a legal tender issued by a central bank in a digital form.\u00a0<\/span><\/span><\/li>\n<li style=\"list-style-type:circle\"><span style=\"font-size:12pt\"><span style=\"font-family:\"Book Antiqua\",serif\">It is sovereign currency in an electronic form and it would appear as liability (currency in circulation) on a central bank\u2019s balance sheet.\u00a0<\/span><\/span><\/li>\n<li style=\"list-style-type:circle\"><span style=\"font-size:12pt\">Though the concept of CBDCs was directly <\/span><span style=\"font-size:12pt\"><strong>inspired by Bitcoin<\/strong><\/span><span style=\"font-size:12pt\">, it is <\/span><span style=\"font-size:12pt\"><strong>different from decentralized virtual currencies<\/strong><\/span><span style=\"font-size:12pt\"> and crypto assets, which are not issued by the state and lack the \u2018legal tender\u2019 status.\u00a0<\/span><\/li>\n<\/ul>\n<\/li>\n<li style=\"list-style-type:disc\"><span style=\"font-size:12pt\"><span style=\"font-family:\"Book Antiqua\",serif\">Features:\u00a0<\/span><\/span>\n<ul>\n<li style=\"list-style-type:circle\"><span style=\"font-size:12pt\"><span style=\"font-family:\"Book Antiqua\",serif\">The underlying technology, form and use of a CBDC can be molded for specific requirements.\u00a0<\/span><\/span><\/li>\n<li style=\"list-style-type:circle\"><span style=\"font-size:12pt\"><span style=\"font-family:\"Book Antiqua\",serif\">It is similar to a fiat currency issued in paper and is interchangeable with any other fiat currency i.e., CBDCs should be exchangeable at par with cash.<\/span><\/span><\/li>\n<li style=\"list-style-type:circle\"><span style=\"font-size:12pt\">The digital fiat currency or CBDC can be <\/span><span style=\"font-size:12pt\"><strong>transacted using wallets backed by blockchain<\/strong><\/span><span style=\"font-size:12pt\">.<\/span><\/li>\n<li style=\"list-style-type:circle\"><span style=\"font-size:12pt\">CBDCs enable the user to conduct both <\/span><span style=\"font-size:12pt\"><strong>domestic and cross-border transactions<\/strong><\/span><span style=\"font-size:12pt\"> which do not require a third party or a bank.<\/span><\/li>\n<\/ul>\n<\/li>\n<li style=\"list-style-type:disc\"><span style=\"font-size:12pt\"><span style=\"font-family:\"Book Antiqua\",serif\">Launch:\u00a0<\/span><\/span>\n<ul>\n<li style=\"list-style-type:circle\"><span style=\"font-size:12pt\"><span style=\"font-family:\"Book Antiqua\",serif\">The Reserve Bank of India will launch the CBDC from the upcoming financial year.\u00a0<\/span><\/span><\/li>\n<li style=\"list-style-type:circle\"><span style=\"font-size:12pt\"><span style=\"font-family:\"Book Antiqua\",serif\">This follows the government\u2019s plans to launch the CBDC that will be backed by <\/span><\/span><span style=\"font-size:12pt\"><span style=\"font-family:\"Book Antiqua\",serif\"><strong>blockchain technolog<\/strong><\/span><\/span><span style=\"font-size:12pt\"><span style=\"font-family:\"Book Antiqua\",serif\">y.<\/span><\/span><\/li>\n<\/ul>\n<\/li>\n<li style=\"list-style-type:disc\"><span style=\"font-size:12pt\"><span style=\"font-family:\"Book Antiqua\",serif\">Government\u2019s intention:<\/span><\/span>\n<ul>\n<li style=\"list-style-type:circle\"><span style=\"font-size:12pt\"><span style=\"font-family:\"Book Antiqua\",serif\">The announcement expresses the government\u2019s intention on cryptocurrencies and other virtual currencies.\u00a0<\/span><\/span><\/li>\n<li style=\"list-style-type:circle\"><span style=\"font-size:12pt\"><span style=\"font-family:\"Book Antiqua\",serif\">The RBI has on several occasions flagged concerns of money laundering, terror financing, tax evasion, etc with private cryptocurrencies like Bitcoin, Ether, etc and had planned to announce its own CBDC.<\/span><\/span><\/li>\n<\/ul>\n<\/li>\n<li style=\"list-style-type:disc\"><span style=\"font-size:12pt\"><span style=\"font-family:\"Book Antiqua\",serif\">Global presence of sovereign digital currencies:<\/span><\/span>\n<ul>\n<li style=\"list-style-type:circle\"><span style=\"font-size:12pt\"><span style=\"font-family:\"Book Antiqua\",serif\">Till December 2021, there are <\/span><\/span><span style=\"font-size:12pt\"><span style=\"font-family:\"Book Antiqua\",serif\"><strong>87 countries<\/strong><\/span><\/span><span style=\"font-size:12pt\"><span style=\"font-family:\"Book Antiqua\",serif\"> (representing over 90% of global GDP) exploring a CBDC, compared to only 35 countries who were considering a CBDC in May 2020.\u00a0<\/span><\/span><\/li>\n<li style=\"list-style-type:circle\"><span style=\"font-size:12pt\"><span style=\"font-family:\"Book Antiqua\",serif\">Out of these, 9 countries (Bahamas, 7 eastern Caribbean &#038; Nigeria) have now fully launched a digital currency.\u00a0<\/span><\/span><\/li>\n<li style=\"list-style-type:circle\"><span style=\"font-size:12pt\"><span style=\"font-family:\"Book Antiqua\",serif\">Nigeria is the latest country to launch a CBDC, the e-Naira, the first outside the Caribbean.\u00a0<\/span><\/span><\/li>\n<li style=\"list-style-type:circle\"><span style=\"font-size:12pt\"><span style=\"font-family:\"Book Antiqua\",serif\">However, the major countries with the <\/span><\/span><span style=\"font-size:12pt\"><span style=\"font-family:\"Book Antiqua\",serif\"><strong>4 largest central banks (the US, the Euro Area, Japan, and the UK),<\/strong><\/span><\/span><span style=\"font-size:12pt\"><span style=\"font-family:\"Book Antiqua\",serif\"> are furthest behind.<\/span><\/span><\/li>\n<li style=\"list-style-type:circle\"><span style=\"font-size:12pt\"><span style=\"font-family:\"Book Antiqua\",serif\">There are 14 countries, including China and South Korea, who are now in the pilot stage with their CBDCs and preparing a possible full launch soon.<\/span><\/span><\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<p style=\"text-align:justify\"><span style=\"font-size:13pt\"><span style=\"font-family:\"Book Antiqua\",serif\"><strong>Significance<\/strong><\/span><\/span><\/p>\n<ul>\n<li style=\"list-style-type:disc\"><span style=\"font-size:12pt\">It will give a <\/span><span style=\"font-size:12pt\"><strong>big boost <\/strong><\/span><span style=\"font-size:12pt\">to the digital economy and India would be the first major country to officially launch its currency in such a manner.<\/span><\/li>\n<li style=\"list-style-type:disc\"><span style=\"font-size:12pt\">A digital rupee transaction would be <\/span><span style=\"font-size:12pt\"><strong>instantaneous <\/strong><\/span><span style=\"font-size:12pt\">as opposed to the current digital payment experience.<\/span><\/li>\n<li style=\"list-style-type:disc\"><span style=\"font-size:12pt\">More <\/span><span style=\"font-size:12pt\"><strong>robust, efficient, trusted, regulated and lega<\/strong><\/span><span style=\"font-size:12pt\">l tender-based payments option.<\/span><\/li>\n<li style=\"list-style-type:disc\"><span style=\"font-size:12pt\">More <\/span><span style=\"font-size:12pt\"><strong>accessible <\/strong><\/span><span style=\"font-size:12pt\">to the people just as UPI made digital cash easier to use.\u00a0<\/span><\/li>\n<li style=\"list-style-type:disc\"><span style=\"font-size:12pt\"><strong>Reduced dependency <\/strong><\/span><span style=\"font-size:12pt\">on cash.<\/span><\/li>\n<li style=\"list-style-type:disc\"><span style=\"font-size:12pt\">Reduced settlement risk.\u00a0<\/span><\/li>\n<li style=\"list-style-type:disc\"><span style=\"font-size:12pt\"><strong>Higher seigniorage<\/strong><\/span><span style=\"font-size:12pt\"> due to lower transaction costs,\u00a0<\/span><\/li>\n<li style=\"list-style-type:disc\"><span style=\"font-size:12pt\"><span style=\"font-family:\"Book Antiqua\",serif\"><span style=\"color:#000000\">Usage of the Digital Rupee could also benefit things like <\/span><\/span><\/span><span style=\"font-size:12pt\"><span style=\"font-family:\"Book Antiqua\",serif\"><span style=\"color:#000000\"><strong>cross-border remittances<\/strong><\/span><\/span><\/span><\/li>\n<\/ul>\n<p style=\"text-align:justify\"><span style=\"font-size:13pt\"><span style=\"font-family:\"Book Antiqua\",serif\"><strong>Challenges<\/strong><\/span><\/span><\/p>\n<ul>\n<li style=\"list-style-type:disc\"><span style=\"font-size:12pt\"><span style=\"font-family:\"Book Antiqua\",serif\"><strong>Price Volatility:<\/strong><\/span><\/span><span style=\"font-size:12pt\"><span style=\"font-family:\"Book Antiqua\",serif\">\u00a0 Prone to price fluctuations &#038; waste of computing power.<\/span><\/span><\/li>\n<li style=\"list-style-type:disc\"><span style=\"font-size:12pt\"><span style=\"font-family:\"Book Antiqua\",serif\"><strong>Lack of Consumer Protection:<\/strong><\/span><\/span><span style=\"font-size:12pt\"><span style=\"font-family:\"Book Antiqua\",serif\"> No Dispute Settlement Mechanisms and control of Securities and Exchange Board of India (SEBI).\u00a0<\/span><\/span><\/li>\n<li style=\"list-style-type:disc\"><span style=\"font-size:12pt\"><span style=\"font-family:\"Book Antiqua\",serif\"><strong>Digital Illiteracy:<\/strong><\/span><\/span><span style=\"font-size:12pt\"><span style=\"font-family:\"Book Antiqua\",serif\"> The population of India is currently not equipped to deal with cryptos.<\/span><\/span><\/li>\n<li style=\"list-style-type:disc\"><span style=\"font-size:12pt\"><span style=\"font-family:\"Book Antiqua\",serif\"><strong>Security Risks:<\/strong><\/span><\/span><span style=\"font-size:12pt\"><span style=\"font-family:\"Book Antiqua\",serif\"> Cyberattacks on wallets, exchange mechanism (Cryptojacking).\u00a0<\/span><\/span><\/li>\n<li style=\"list-style-type:disc\"><span style=\"font-size:12pt\"><span style=\"font-family:\"Book Antiqua\",serif\"><strong>Shield to Crime:<\/strong><\/span><\/span><span style=\"font-size:12pt\"><span style=\"font-family:\"Book Antiqua\",serif\">\u00a0 If not regulated and monitored properly, it can be used for illicit trading, criminal activities, &#038; organized crimes.\u00a0<\/span><\/span><\/li>\n<li style=\"list-style-type:disc\"><span style=\"font-size:12pt\"><span style=\"color:#000000\"><strong>Popularity of Cryptocurrencies:<\/strong><\/span><\/span><span style=\"font-size:12pt\"><span style=\"color:#000000\"> RBI has repeatedly flagged concerns over money laundering, terror financing, tax evasion, etc with private cryptocurrencies like Bitcoin, Ether, etc.\u00a0<\/span><\/span><\/li>\n<\/ul>\n<p style=\"text-align:justify\"><span style=\"font-size:12pt\"><span style=\"font-family:\"Book Antiqua\",serif\">\u00a0\u00a0<\/span><\/span><\/p>\n<p style=\"text-align:justify\"><span style=\"font-size:13pt\"><span style=\"font-family:\"Book Antiqua\",serif\"><strong>Way Ahead<\/strong><\/span><\/span><\/p>\n<ul>\n<li style=\"list-style-type:disc\"><span style=\"font-size:12pt\"><span style=\"font-family:\"Book Antiqua\",serif\">The Reserve Bank of India (RBI) should <\/span><\/span><span style=\"font-size:12pt\"><span style=\"font-family:\"Book Antiqua\",serif\"><strong>leverage the existing infrastructure<\/strong><\/span><\/span><span style=\"font-size:12pt\"><span style=\"font-family:\"Book Antiqua\",serif\"> through NPCI for a faster introduction and adoption of digital rupee across the economy through QR code system.<\/span><\/span><\/li>\n<\/ul>\n<ul>\n<li style=\"list-style-type:disc\"><span style=\"font-size:12pt\">Introducing its own CBDC has been seen as a way to<\/span><span style=\"font-size:12pt\"><strong> bridge the advantages and risks<\/strong><\/span><span style=\"font-size:12pt\"> of digital currency.<\/span><\/li>\n<li style=\"list-style-type:disc\"><span style=\"font-size:12pt\"><span style=\"color:#000000\">A <\/span><\/span><span style=\"font-size:12pt\"><span style=\"color:#000000\"><strong>formal announcement<\/strong><\/span><\/span><span style=\"font-size:12pt\"><span style=\"color:#000000\"> by the RBI is awaited which will <\/span><\/span><span style=\"font-size:12pt\"><span style=\"color:#000000\"><strong>detail on how<\/strong><\/span><\/span><span style=\"font-size:12pt\"><span style=\"color:#000000\"> the Digital Rupee will be transacted by citizens.\u00a0<\/span><\/span><\/li>\n<\/ul>\n<p>\u00a0<\/p>\n<div>\n<table cellspacing=\"0\" style=\"border-collapse:collapse; border:none; table-layout:fixed; width:624px\">\n<tbody>\n<tr>\n<td style=\"background-color:#fff2cc; border-bottom:1px solid #000000; border-left:1px solid #000000; border-right:1px solid #000000; border-top:1px solid #000000; vertical-align:top\">\n<p><span style=\"font-size:13pt\"><span style=\"font-family:\"Book Antiqua\",serif\"><strong>Fiat Money<\/strong><\/span><\/span><\/p>\n<ul>\n<li style=\"list-style-type:disc\"><span style=\"font-size:12pt\">It is a government-issued currency that is not backed by a commodity such as gold.<\/span><\/li>\n<li style=\"list-style-type:disc\"><span style=\"font-size:12pt\">It gives central banks greater control over the economy because they can control how much money is printed.<\/span><\/li>\n<li style=\"list-style-type:disc\"><span style=\"font-size:12pt\">Most modern paper currencies, such as the US dollar, are fiat currencies.<\/span><\/li>\n<li style=\"list-style-type:disc\"><span style=\"font-size:12pt\">One danger of fiat money is that governments will print too much of it, resulting in hyperinflation.<\/span><\/li>\n<\/ul>\n<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<\/div>\n<p>\n<span style=\"font-size:12pt\"><span style=\"font-family:\"Book Antiqua\",serif\"><strong>Source<\/strong><\/span><\/span><span style=\"font-size:12pt\"><span style=\"font-family:\"Book Antiqua\",serif\">: <\/span><\/span><a href=\"https:\/\/indianexpress.com\/article\/explained\/explained-economics\/cbdc-the-digital-rupee-that-rbi-could-introduce-this-year-8105208\/\" style=\"text-decoration-line:none\" target=\"_blank\" rel=\"noopener\"><span style=\"font-size:12pt\"><span style=\"font-family:\"Book Antiqua\",serif\"><span style=\"color:#1155cc\">IE<\/span><\/span><\/span><\/a><\/p>\n","protected":false},"excerpt":{"rendered":"<p>In News Recent Report informs that the Reserve Bank of India\u2019s (RBI) digital rupee \u2014 the Central Bank Digital Currency (CBDC) \u2014 may be introduced in phases beginning with wholesale businesses in the current financial year. Key Points In the Budgetary Speech it was stated that the central bank would launch the CBDC in the [&hellip;]<\/p>\n","protected":false},"author":1,"featured_media":7539,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[21],"tags":[26,46],"class_list":["post-7538","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-current-affairs","tag-gs-3","tag-indian-economy-related-issues"],"acf":[],"jetpack_featured_media_url":"https:\/\/wp-images.nextias.com\/cdn-cgi\/image\/format=auto\/ca\/uploads\/2023\/07\/80669Screenshot_20220822-210619_Chrome.jpg","_links":{"self":[{"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/posts\/7538","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/comments?post=7538"}],"version-history":[{"count":1,"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/posts\/7538\/revisions"}],"predecessor-version":[{"id":54563,"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/posts\/7538\/revisions\/54563"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/media\/7539"}],"wp:attachment":[{"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/media?parent=7538"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/categories?post=7538"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/tags?post=7538"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}