Syllabus– General Studies 3 (economy)/ (science and technology)
The Reserve Bank of India has indicated that pilot projects to figure out the viability of Central Bank Digital Currency (CBDC) are likely to be launched soon.
- In recent years, the significant rise of private cryptocurrencies such as Bitcoin and Ether has spooked central banks throughout the world and pushed the case for official digital currencies.
- RBI is currently working towards a phased implementation strategy and examining use cases that could be implemented with little or no disruption.
- The clarity is welcome, given that the much-awaited Cryptocurrency and Regulation of Official Digital Currency Bill, 2021, is yet to be introduced.
- The Deputy Governor of RBI himself cited a 2021 BIS survey of central banks, which found that
- 86% were actively researching the potential for such currencies,
- 60% were experimenting with the technology, and
- 14% were deploying pilot projects.
- China, having already engaged in pilot projects for its digital RMB, is in fact planning a major roll-out soon. There has been little doubt, therefore, that India needs a digital rupee.
- The important questions are about the details and the timeline.
- While official digital currencies can borrow the underlying technology feature of private cryptocurrencies, they significantly differ from the latter in their philosophy and goals.
- Also to be considered are the possible impacts of the introduction of an official digital currency on people, the monetary policy, and the banking system.
- There are risks to be considered as well, not the least of which will be those emerging from cyberattacks. What is more, many laws need to be amended to make the digital rupee a reality.
- So, while India might have done exceedingly well in digital payments in recent years — the Deputy Governor said they have grown at a compounded annual growth rate of 55% over the last five years — the digital rupee will be something else altogether.
- There are crucial decisions to be made about the design of the currency with regards to how it will be issued, the degree of anonymity it will have, the kind of technology that is to be used, and so on. It is possible that the question of the degree of anonymity, especially, will be quite a challenging one.
- Also with such a large scale adaptation of private cryptocurrencies, it is obvious that Central Bank Digital Currency will be the future money.
Question- Write a short note on the affability of central bank digital cryptocurrency.
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