Central Bank Digital Currency (CBDC):
The Reserve Bank of India has been working on a phased implementation strategy for a CBDC and the pilot may be launched by the end of this year.
- The financial advisory services firm has listed four major use cases of CBDC in the Indian context.
- This includes:
- ‘Fit-for-purpose’ money used for social benefits and other targeted payments in a country.
- For such cases, the central bank can pay intended beneficiaries pre-programmed CBDC, which could be accepted only for a specific purpose.
- CBDCs could be used for faster cross-border remittance payments. International collaboration among the major economies of the world, including India, could help create the necessary infrastructure and arrangements for CBDC transfer and conversion.
- Payment instruments could be made available for payment transactions to be made via CBDC. Furthermore, universal access attributes of a CBDC could also include an offline payment functionality.
- Instant lending to micro, small, and medium enterprises (MSMEs) in India can be possible with the help of CBDC.
- An official digital currency would reduce the cost of currency management while enabling real-time payments without any inter-bank settlement.
- India’s fairly high currency-to-GDP ratio holds out another benefit of CBDC — to the extent large cash usage can be replaced by CBDC, the cost of printing, transporting and storing paper currency can be substantially reduced.
- The need for inter-bank settlement would disappear as it would be a central bank liability handed over from one person to another.
CBDC or National Digital currency:
- A Central Bank Digital Currency (CBDC), or national digital currency, is simply the digital form of a country’s fiat currency. Instead of printing paper currency or minting coins, the central bank issues electronic tokens.
- This token value is backed by the full faith and credit of the government.