While CBDCs bring advantages like reducing transaction costs and enhancing monetary policy, challenges related to privacy, cybersecurity, and infrastructure need to be addressed. Even the Federal Reserve acknowledges the technological innovation of digital assets as a form of money. But the Fed warns that there are risks that might leave customers vulnerable to theft and fraud, despite its understanding of the potential.
Central Bank Digital Currencies (CBDCs) are digital versions of a country’s fiat currency, issued and regulated by the central bank. Unlike decentralized cryptocurrencies, CBDCs are centralized and fully controlled by the government, offering a state-backed alternative to physical cash. CBDCs can be used for a variety of purposes, including daily transactions, cross-border payments, and enhancing financial inclusion while providing a more secure and efficient form of digital money. Central Bank Digital Currencies (CBDCs) represent a digital version of a country’s fiat currency, issued and regulated by central banks. These digital currencies aim to modernize financial systems, increase financial inclusion, and improve payment efficiency, offering a government-backed option for everyday transactions.
It is researching the effects a CBDC would have on the dollar, the US, and the global economy. As of June 2024, 134 countries were piloting, researching, developing, or otherwise exploring a CBDC initiative for their economies. BHIM is a UPI-enabled initiative to make quick and easy payments, developed by NPCI. InsightsIAS has redefined, revolutionized and simplified the way aspirants prepare for UPSC IAS Civil Services Exam.
In March 2022, Biden directed the OSTP, in partnership with other institutions, to scrutinize and come up with a viable answer to the question of digital assets and a U.S. The White House placed urgency on creating a digital dollar, outlining plans to guide its creation. A U.S. CBDC could affect the financial structure of the U.S. and alter the duties and responsibilities of the private sector and the central bank.
Vikash Ranjan Sir is the Best Sociology Teacher and Triumph IAS is the best sociology coaching in Delhi. India has introduced the e-Rupee, a form of digital currency, through the Reserve Bank of India (RBI). The e-Rupee aims to modernize the financial infrastructure, ensure financial inclusion, and reduce transaction costs. The digital currency was initially rolled out in phases, with pilot projects for wholesale and retail use in 2022 and 2023. The e-Rupee seeks to integrate with India’s existing digital payment systems, providing a reliable, government-backed alternative to cash for everyday transactions.
The Federal Reserve has identified the advantages and disadvantages of having a CBDC in circulation. Erika Rasure is globally-recognized as a leading consumer economics subject matter expert, researcher, and educator. She is a financial therapist and transformational coach, with a special interest in helping women learn how to invest. The RBI’s commitment to addressing privacy concerns surrounding the CBDC through technological and legislative means reflects its dedication to ensuring the successful implementation of digital currency. A digital signature is an electronic method of signing an electronic document whereas a Digital Certificate are the digital equivalent (that is electronic format) of physical or paper certificates. Few Examples of physical certificates are drivers’ licenses, passports or membership cards.
The RBI said that this digital rupee will offer trust, safety and settlement finality like the physical currency. However, it will not earn any interest and can be converted to other forms of money, like deposits with banks. The Bahamas was the first country to launch a nationwide Central Bank Digital Currency (CBDC), named the Sand Dollar, in 2020. Following this, Nigeria also rolled out its eNaira in the same year.
Based on MobiKwik’s response, it does not seem like the CBDC wallet offers any significant additional benefit to the consumer. While it is true that CBDC transactions won’t show up on bank statements like UPI transactions, the RBI will be recording them on a blockchain. Unlike popular understanding, blockchain-based transactions, including cryptocurrencies, are not necessarily anonymous but only pseudonymous as the blockchain records every transaction with a unique wallet ID. Further, both CRED and MobiKwik have Know Your Customer (KYC) requirements for wallet users, making any claims toward anonymity suspect. Users will have to make the transactions through a digital wallet offered by the participating banks and stored on mobile phones/devices.
Former RBI deputy governor SS Mundra had expressed similar skepticism about the CBDC project, suggesting that it did not serve any special purpose given the prevalence of UPI. Reproduction of news articles, photos, videos or any other content in whole or in part in any form or medium without express written permission of moneycontrol.com is prohibited. According to recent reports, the Reserve Bank of India’s (RBI) digital rupee — the Central Bank Digital Currency (CBDC) — may be introduced in phases beginning with wholesale businesses in the current financial year. The Reserve Bank of India had started a pilot for the e-rupee, which is a digital alternative to the physical currency, in December 2022. Risks include privacy concerns, cybersecurity threats, potential disruption to the banking system, and the challenge of ensuring accessibility and infrastructure for widespread adoption.
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