What is Digital Currency – 6 big benefits of CBDC
RBI Deputy Governor T. Ravi Shankar has recently said that RBI can present by the end of the coming year. The issue of digital currency has been in trend for the last several months and after this latest statement by Ravi Shankar, it has gone a step further. Earlier, he had said that various aspects related to digital currency are being studied seriously.
In the year 2019 itself, the Inter-Cabinet Committee, formed to study various issues related to crypto / private virtual currency, recommended the Central Bank Digital Currency (CBDC).
What is Digital Currency?
It is a digital version of the country’s fiat currency (such as the rupee, dollar, or euro). It is issued by the central bank. Also, it gives a guarantee.
It is one-to-one exchangeable with fiat currency as well. However, this will be different from existing forms of private money such as e-money (money stored in prepaid wallets) or bank deposits that can be transferred electronically using cards or mobile payment systems.
Will it be a form of cryptocurrency?
Not completely. No one is accountable to cryptocurrencies, whereas digital currency, on the contrary, will be the responsibility of the central bank. The price of cryptocurrencies fluctuates a lot. Bitcoin is an example of this. Its price has dropped to less than half in the last three months.
Cryptocurrencies are mined. Blockchain technology is used for this, it is not issued by any government or any regulatory authority. In contrast, digital currency is issued by the central bank. However, very few countries have come forward to issue such currencies so far.
How will digital currency work?
How can it be a digital currency?
On the basis of various studies, let us know what are the forms of CBDC.
1 Retail CBTC or Wholesale CBDC :
Retail CBDCs will be primarily aimed at the general public and businesses (households and businesses) and will be made widely available. Whereas wholesale CBDCs will be used only for inter-bank payments, security settlements, or other fraudulent transactions.
2 Account-based or token-based:
Token-based CBTCs can be either retail or wholesale. While account-based CBDCs can be for general use
How can this bring about a historical change?
There can be two models of CBDC based on Public and Private Partnership. Let us see how these models will work:
Direct: Under this, the central bank will be responsible for all aspects related to the issuance of CBDC to ensuring its accessibility to the end-users.
o Indirect: In this, the central bank will develop a core system and the private players will be responsible for ensuring the accessibility of the CBDC system to the users. –
There is a possibility that RBI may introduce a retail digital currency to the general public in the country. This will mark the beginning of a historic change in the current operating system of the RBI, as in the existing system, the RBI does not have any direct relationship with the end-users. Direct or direct…
What will be the 6 big benefits of CBDC?
CBDC is not issued yet. Therefore, on the basis of the assessment of various bankers and technologists, these advantages can be counted:
1. Decreased dependence on cash: The dependence on cash will decrease and the expenditure on printing currency will also be curbed. Unlike countries like UK and Sweden, cash flow is still high in India. of India’s 12 percent | In Sweden and UK, the cash in circulation to GDP ratio is only 2.3 percent and 3.4 percent.
2. Financial inclusion will be promoted: Due to the huge population, there are still 19 crore people in India who do not have bank accounts. This figure is as of 2017. To an extent, CBDC can be a good option to promote financial inclusion.
3. Will boost digitalization: India has taken several steps to promote digital payments in the past. The introduction of digital currency can improve the efficiency of the payment system as well as boost competition and innovation in the sector.
4. Rein on private digital currency: If more people adopt private digital currency (like bitcoin) then the efficiency of the central bank can be affected which will ultimately be dangerous for the economy of the country. The central bank believes that CBDC can be helpful in reining in private digital currency.
5. Preventing Financial Crime: This can improve the country’s ability to tackle financial crimes such as money laundering and tax evasion, as the CBDC system will make it much easier to track and trace transactions.
6. Improvement in cross-border payment system: CBDC can play a big role in this too. In the case of foreign exchange transactions in this system, there will be no delay in settlement irrespective of the time zone is different.
This will ultimately be beneficial for the economy of the country.
RBI may soon issue digital currency in the country. Its preparations have also started. this digital currency
RBI may soon issue digital currency in the country. Its preparations have also started. This time’s cover story explores how this digital currency will be and what it will change.
What will be the digital currency?
Barter exchange of goods for goods. This system applied with the existence of man. This continued till the 18th century.
Gold Currency The first gold currency was in Libya before 550 AD. Later gold and silver coins were in circulation in many places till the 19th century.
Paper currency was first introduced in China during the Tang dynasty around 630 AD. It became popular in Europe in the 17th century.
Plastic Money The first credit card was introduced in 1958 by American Express Bank. The first ATM was installed in London in June 1967.
E-Wallet In 1998, Pay Pay launched the E-Wallet. Mobile payments became easier with the launch of Google Wallet in 2017.
Digital Currency The first cryptocurrency was in 2009 in the form of bitcoin. The first central bank digital currency was introduced in the Bahamas on October 20.