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What's the article about?
- It talks about the RBI's plan to issue the Central Bank Digital Currency (CBDC) in India, it's advantages and challenges.
Relevance:
- GS3: Indian Economy & related issue;
- prelims: concept of CBD
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What Is a Central Bank Digital Currency (CBDC)?
Difference between CBDC and cryptocurrencies:
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Advantages:
- accelerating the pace of financial inclusion and digitisation in the economy
- enhancing the efficiency of the payment systems
- lowering the costs associated with physical cash management
- ensuring financial stability given the proliferation of crypto currencies.
- international remittances may increase
Challenges:
- Technological backbone — whether the underlying infrastructure of the CBDC will be a centrally controlled database or based on a decentralised ledger technology like Bitcoin.
- Choice bet. wholesale digital currency whose usage is restricted only to financial institutions or a retail digital currency which allows for its widespread usage.
- Whether CBDC be issued and managed solely by the central bank or will its management be left to intermediaries.
Way Forward:
- India already has a robust payments ecosystem which provides for real-time transactions. To what extent the benefits from issuing a CBDC will materialise is debatable.
