Central Bank Digital Currency

 

Context:

• The Reserve Bank of India (RBI) will start issuing country’s much-awaited digital currency in financial year 2023.
• Now there is discussion about the RBI’s place in the economy given the decentralized nature of the crypto currencies which cannot be easily regulated by the central banks.

 

Background:

• After looking into the budget, it was felt that the crypto currencies will be discouraged via taxation and capital gains.
• The Governor of the Reserve Bank of India had held that private cryptocurrencies are a big threat to our financial and macroeconomic stability.
• Yet, the RBI announced that it will float a Central Bank Digital Currency (CBDC).
• Cryptos which operate using the blockchain technology and internet can be regulated completely only if all the nations come together.
• As of now the total valuation of the cryptos has reached up to a mammoth valuation of two trillion dollars.

 

About:

• A CBDC will not solve the RBI’s problem since it can only be a fiat currency and not a crypto.
• So, cryptos acquire value and can be transacted via the net. This enables them to function as money.
• The challenges underlying with cryptos are the problem of ‘double spending’.
• Fiat currency has the property that once spent, it cannot be spent again except through forgery, because it is no more with the spender. But, software on a computer can be used repeatedly.

 

Source: THE HINDU.

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