23 Jul Central Bank Digital Currency
Central Bank Digital Currency – Today Current Affairs
Recent Event: The CBDC is now being phased-in by RBI for the wholesale and retail markets.
Today Current Affairs
- 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 CBDC : The Hindu Analysis
- It is also known as a national digital money, 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 a digital money backed by a government.
Recent steps towards CBDC : The Hindu Analysis
- The introduction of CBDC was announced in the Union Budget 2022-23.
- Government amended 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 Digital Currency Bill, 2021 : The Hindu Analysis
- 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 is Block-chains? The Hindu Analysis
Block chains are a cryptographic data Ledger, that is distributed across the network. It can also be used for transfer of any data or digital asset like cryptocurrencies without the need for central authorisation like RBI for Indian rupee, by achieving consensus among distributed nodes. The present block chain ecosystem is like the early Internet.
How is it different from current payment systems? The Hindu Analysis
Block chain technology allows, 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 do 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 block chain technology : The Hindu Analysis
- As all transactions are authorized by all miners simultaneously, thus the transactions are inert to hacking.
- Block chain technology discards the need of any third-party or central authority for peer-to-peer transactions.
Concerns associated : The Hindu Analysis
- Block chain is still a (relatively) new technology and there are concerns about the privacy.
- Block chain-based cryptocurrencies like bitcoin are threat to 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 Block chains.
Use in govt. services : The Hindu Analysis
- Can be used for monetary transactions without any central authority and without any worry of cyber-attacks due to non-availability of a single point of focus.
- The ledger can be tweaked to create hierarchies with a suitably tailored degree of access thus create a modifying authority to 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 block chain technology.