CBDC Facets

CBDC Facets

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May 08, 2023

Finance Minister Nirmala Sitharaman stated in her Budget address on February 1 that the Central Bank will introduce the CBDC, or Central Bank Digital Currency, in fiscal year 2022-23.

What exactly is CBDC? - "CBDC is the official currency given out by a Central Bank in an electronic form," according to the RBI. It is exactly the same as fiat currency and may be exchanged one for one with it. Only the shape is different." CBDC, or Digital Fiat Currency, may be exchanged via blockchain-backed wallets.

What distinguishes it from Bitcoin? - While the concept of CBDCs was inspired directly by Bitcoin, it differs from decentralised digital currency and crypto-assets, that aren't distributed by the state and lack 'legal tender' status. CBDCs allow users to perform both domestic and international transactions without the involvement of an additional entity or a bank.

What difference will it make? - CBDC has the potential to bring considerable benefits, including less reliance on cash, increased Seigniorage owing to less expensive transactions, and lower settlement risk. CBDC might also result in an even more robust, efficient, reliable, monitored, and statutory tender-based payment solution. However, there are hazards that must be carefully weighed against the possible advantages. The RBI has often expressed worries about private cryptocurrencies like as Bitcoin, Ether, and others being used for money laundering, terror funding, and tax evasion. The introduction of its very own CBDC has been viewed as a means of bridging the benefits and hazards of Digital Currency.

What effects will the implementation of the Digital Rupee have on citizens? - Several ideas have been presented by technology professionals and enthusiasts for how the Digital Rupee may be transacted, and the RBI's formal announcement will most likely reveal the details. One significant distinction might be that a Digital Rupee transaction, as opposed to the existing Digital payment experience, would be immediate.

How will it be implemented? - In October 2021, the government obtained a request from the Reserve Bank of India to change the RBI or, the Reserve Bank of India Act, 1934 to broaden the scope of the term of 'Bank note' to include currency in digital form. The RBI has been investigating use cases and developing a phased deployment strategy for the adoption of CBDC with minimal interruption.

Source - The HINDU