Introduction of a digital currency supported by the central bank (CBDC) was a major feature of the Union Budget 2022. India's Reserve Bank of India plans to release a digital rupee in the next fiscal year.
For the first time, the CBDC has left everyone scratching their heads as to what a digital rupee would be and how it would function in India. To put it another way, CBDC is a digital version of a country's official tender. Aside from its shape, it is identical to the fiat money and may be traded.
What distinguishes CBDC from other cryptocurrencies?
The CBDC is centralised with the support of the RBI. Cryptocurrencies, on the other hand, are decentralised and have no central issuer. They also reflect no one's debt or liability.
How long will CBDC be operational?
Before the launch, it appears that the crypto legislation must be approved by Parliament. CBDC will necessitate changes to the RBI Act, the Coinage Act, the FEMA, and the IT Act, all of which were written with paper money in mind when they were enacted.
Is CBDC a superior digital payment method than others?
A reduction in the requirement for an interbank settlement is possible. In addition, the digital currency would improve the speed and efficiency of financial transfers over the world. Without the requirement for a middleman, any Indian dealer might readily pay a foreign buyer.
Is CBDC going to have an impact on banks?
Yes. Using CBDCs can lower the demand for bank deposits, but they also minimise settlement risk. Because of this, the reliance on bank deposits may be reduced thanks to digital money.
Are digital currencies necessary in India?
As a practical matter, CBDC will not be able to completely replace cash in India any time soon. But if India adopts a digital currency, the costs associated with producing and delivering money will be greatly reduced. In addition, with the proliferation of digital payments and the decline in the use of paper cash, a move to electronic forms of currency is required.
What would be the monetary policy implications of a CBDC?
For a long time, the supply of money was monitored through the purchase and sale of bonds, the exchange of currencies, and the adjustment of bank reserve ratios. But the use of CBDC might analyse the demand for money and enhance administration of policies as well.
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