Digital Currency of the
Central Bank (CBDC):
In the Union Budget 2022–23, it was
announced that a central bank currency would be introduced.
The importance, problems, and global
adoption of central bank digital currency were covered in this article (CBDC).
What is Central Bank Digital Currency
(CBDC) and how does it work?
The RBI's digital bank note, which can be
used for financial transactions by individuals, corporations, or businesses.
Also known as "digital fiat
cash,"
The Importance of CBDC:
It allows for cashless transactions.
Reduces cash usage and currency
management costs (costs associated with printing, transporting, and storing
paper currency).
It enables real-time payments without the
need for inter bank settlement.
It facilitates (sped up) international
trade transactions between countries, making them less expensive and more
secure.
It serves as a viable alternative to
volatile crypto currencies.
People may begin removing money from
their bank accounts as the use of digital currencies develops.
The huge outflow of funds from bank
accounts to digital currencies may have an impact on the quantity of loans that
banks issue.
The term "digital divide"
refers to the gap between people.
For fear of security breaches, the vast
majority of Indians still do not have access to smartphones.Seniors are
hesitant to embrace digitization because of their previous experiences with
internet scammers.
An identity crisis
Despite this, a large number of people
lacked Aadhaar cards or Pan Cards.
Solutions to this problem:
'The RBI has the right to set a
restriction on how much money a person can store in CBDC.
The Reserve Bank of India (RBI) has the
capacity to infuse new money into the banking system to help banks avoid unfavorable
consequences.
What distinguishes it from crypto
currencies (such as Bit coin)?
In India, crypto currency is illegal (it
is not regulated).
The RBI is in charge of CBDC.
What is RBI's motivation for introducing
CBDC?
The rise of crypto currencies such as Bit
coin and Ethereum will have an impact on traditional banking. As a result,
governments are establishing their own digital currencies in order to regulate
the growth and influence of crypto currencies.
The rise of crypto currencies such as Bit
coin and Ethereum will have an impact on traditional banking.
As a result, governments are establishing
their own digital currencies in order to regulate the growth and influence of crypto
currencies.
For example, China's digital RMB is the
country's first digital money.
By 2025, the European Central Bank
intends to introduce a digital euro.
In this context, India has established a
high-level inter-ministerial committee to revise the RBI Act, 1934 to implement
CBDC.
In 2020, the Bahamas became the first
CBDC in the world.
Several countries, notably the United
States, the European Union, and China, are developing their own CBDCs.