23 Jul Central Bank Digital Currency
Central Bank Digital Currency
Recent Event: The Central Bank Digital Currency (CBDC) is now being phased in by RBI for the wholesale and retail markets.
- For social assistance and other specific payments in a nation.
- CBDCs might be used to send money across borders more quickly.
- A CBDC’s universal access features may also offer an offline payment option, bridging the digital gap and promoting inclusive development.
- Immediate financing to micro, small, and medium-sized businesses (MSMEs) in India may be feasible.
About Central Bank Digital Currency
- CBDC is known as national digital money and is merely the fiat currency of a nation in digital form.
- The central bank releases electronic tokens rather than producing paper money or striking coins. The Hindu Analysis
- CBDC is not comparable with private virtual currencies or cryptocurrencies. This token value is backed by the full confidence and credit of the government. It will be digital money backed by the government.
Recent steps towards Central Bank Digital Currency
- The introduction of CBDC was announced in the Union Budget 2022-23.
- The government amended the section of the RBI Act, 1934 through the Finance Bill 2022.
- India’s official digital currency is likely to debut by early 2023.
Crypto-Currency and Regulation of Official Central Digital Currency Bill, 2021
- This bill prohibits all private cryptocurrencies and provides for an official digital currency to be issued by the Reserve Bank of India (RBI).
- Government officials and experts argue cryptocurrency prices are too volatile to serve as a fiat currency. The Hindu Analysis
- The Supreme Court has set aside a 2018 circular of the Reserve Bank of India (RBI) that prohibited banks and entities regulated by it from providing services in relation to virtual currencies (VCs).
What are Block-chains?
Blockchains are cryptographic data Ledgers, that are distributed across the network. It can also be used for the transfer of any data or a digital asset like cryptocurrencies without the need for central authorization like RBI for the Indian rupee, by achieving consensus among distributed nodes. The present blockchain ecosystem is like the early Internet.
How is it different from current payment systems?
Blockchain technology allows, the instant recognition of the exact size of the block by all transacting parties in the chain since the block is simultaneously updated on all databases, and carries a digital signature that does not allow tampering with the definition of the block. Therefore, it creates instant trust without having to rely on a series of trustworthy banks to clear cheques.
Benefits of blockchain technology
- As all transactions are authorized by all miners simultaneously, thus the transactions are inert to hacking.
- Blockchain technology discards the need for any third-party or central authority for peer-to-peer transactions.
- Blockchain is still a (relatively) new technology and there are concerns about privacy.
- Blockchain-based cryptocurrencies like bitcoin are a threat to the security of nations worldwide due to their increasing use in terrorism, child pornography, drugs, etc.
- Banks are also at threat of losing significance with the increasing use of Blockchains.
Use in govt. services
- Can be used for monetary transactions without any central authority and without any worry of cyber-attacks due to the non-availability of a single point of focus.
- The ledger can be tweaked to create hierarchies with a suitably tailored degree of access thus creating a modifying authority for each level. Example in land records.
However, the initial cost of transitioning to such a unique architecture can be high. Also, the identification of hierarchies is difficult. Most of all, there will be resistance from government staff to the massive shift in state-citizen interaction ushered in by blockchain technology.
Here we mention all information about Central Bank Digital Currency.
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