The Need of The Hour — Central Bank Digital Currency!

There has been a buzz around cryptocurrency, and if or not, should we hold the asset lately. On an interesting note, a lot of big tech giants are investing in cryptocurrencies such as Bitcoin, Ethereum, and more. A lot of technology companies have started accepting Bitcoin as a mode of payment, just like physical cash. 

For the past three months, prices of each unit of Bitcoin skyrocketed as much as over $60,000/Bitcoin. This year, Bitcoin rose around 72% after tech billionaire Elon Musk’s electric vehicle company Tesla invested $1.5 billion in it. Twitter CEO Jack Dorsey’s Square also invested $170 million in Bitcoin.

This shows that a lot of people are adapting to a more cashless payment system. However, half the side of the universe finds the concept of cryptocurrency unsafe. This is when the concept of Central Bank Digital Currency is introduced. Let me walk you through CBDC. 

Central Bank Digital Currency uses a blockchain-based token to represent the country’s official digital currency. Unlike Bitcoin, which is privately owned, a CBDC would be centralized by a country’s monetary authority. The Central Bank, in the case of India, the RBI, will offer us any non-physical digital token issued as a substitute for cash. 

Only Central banks of every country can issue electronic coins or accounts backed by the full faith and credit of the government. CBDC acts as a mouthpiece of a country’s digital currency. It will be aided by monetary reserves such as gold or foreign currency reserves. Each CBDC unit can be used for payments just like cash, coins. Except, it is virtual money. 

To prevent imitation, each CBDC unit will have its own serial number. Keeping that aside, let me explain the two types of CBDC that exist: retail and wholesale.

Wholesale CBDCs are meant for use by financial institutions that hold reserve deposits with the central bank. On the other hand, Retail CBDCs are used by individuals, households, and corporations. It can be used by households and businesses to make payments.

Why did CBDC come into existence? To avoid scams, hacks, and thefts of data! It is considered a more convenient and secure mode of payment and can help attain financial stability, financial inclusion, and easy cross-border payments.

CBDC model provides a resilient alternative to consumers because it is less susceptible to attacks, tampering, and technological disruptions. If introduced in India, the CBDC unit will be monitored by our Central Bank, the “Reserve Bank of India.”

There are countries that pilot-tested CBDCs, such as Bank of England (BoE), People’s Bank of China (PBoC), Bank of Canada (BoC), and banks of Venezuela, Thailand, Sweden, and Singapore, among others. Russia is currently working on its own CBDC instrument creation called “crypto-ruble”. 

However, no country has launched its own official CBDC instrument so far. Quoted by Coindesk, according to the RBI, an interest-bearing CBDC would improve an economy’s ability to respond to changes in the policy interest rate and enhance monetary policy transmission. 

The Indian government, in exploring the world of CBDC, however, has recently condemned people from trading in cryptocurrency. Any individual found holding any digital asset would be penalized. 

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