Central Bank Digital Currency (CBDC)
Context:
- Despite the involvement of 13 participating banks, daily transactions in this digital form of fiat money are reportedly only in the range of 10,000-12,000, though 3.5 million merchants and 1 million customers were selected for RBI’s nearly-year-old pilot project across 13 cities.
What Is a Central Bank Digital Currency (CBDC)?
- Central Bank Digital Currency (CBDC) is a digital counterpart of government-backed fiat money.
- This kind of digital currency is connected to the nation’s currency and issued by its central bank.
- The same would be the case with the ‘digital rupee’ in India as it will be backed by the central bank of India, i.e. RBI.
- According to RBI, “A CBDC is a legal tender issued by a central bank in a digital form.
- It is the same as a fiat currency and is exchangeable one-to-one with the fiat currency.
- It is a sovereign currency in electronic form and would appear as a liability (currency in circulation) on the balance sheet of the central bank of India.
- Although CBDC is a virtual or digital currency, it cannot be compared to the private virtual currencies or cryptocurrencies that have exploded over the past ten years.
Features of CBDC:
- the legal tender
- issued and governed by the central bank
- is in digital form
- same as a fiat currency
- will be based on blockchain technology
Syllabus: Prelims; Economy
