Context:
RBI Governor notified that existing cross-border payments can be made efficient by the adoption of Central Bank Digital Currencies (CBDCs).
About CBDC:
- It refers to a digital form of paper currency, functioning as legal tender and issued and backed by a central bank.
- Denoted as e-Rupee (e₹).
- Main Features –
- It is interchangeable one-to-one at par with the fiat currency and is the same as a sovereign currency.
- Appears as a liability on the RBI balance sheet.
- Must be recognised as a legitimate form of payment and safe place to hold money.
- Fungible legal tender for which holders need not have a bank account.
- Available in online and offline mode.
- Structure –
- Token-based system (An instrument like banknotes)
- Account-based system (Involves maintenance of record of balances and transactions of all holders of CBDC)
- Types of CBDC –
- Retail CBDC: An electronic version of cash primarily meant for retail transactions.
- Wholesale CBDC: It is designed for restricted access to select financial institutions.
- Advantages of e Rupee –
- Cost Reduction
- Enhanced Payments System
- Offline Accessibility
- Promoting Digitization
- Financial Inclusion
CBDC in Global level:
- Bahamas (1st nation to launch CBDC) — Sand Dollar
- Nigeria – eNaira
- China – e-CNY
- Other countries include – USA, Jamaica, UAE, Ghana, Malaysia, Singapore and Thailand.
Source: The Hindu
Previous Year Question
With reference to Central Bank digital currencies, consider the following statements:
1. It is possible to make payments in a digital currency without using US dollar or SWIFT system.
2. A digital currency can be distributed with condition programmed into it such as a time-frame for spending it.
Which of the statements given above is/are correct?
[UPSC Civil Services Exam – 2023 Prelims]
(a) 1 only
(b) 2 only
(c) Both 1 and 2
(d) Neither 1 nor 2
Answer: (c)
