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What is the news?
The Reserve Bank of India (RBI) has said that it is working towards a phased implementation strategy for its digital currency (i.e. Central Bank Digital Currency).
- Central banks across the world have drawn up plans to launch their digital currency to battle cryptocurrencies. China has said that its e-CNY has been tested in 70 million transactions.
Why RBI wants a CBDC for India?
- It would reduce currency costs for the government and would help offset the threat of virtual currencies.
- Developing our own CBDC could provide the public with uses that any private virtual currency can provide, and to that extent might retain the public preference for the rupee.
- It could also protect the public from the abnormal level of volatility that some of these virtual currencies experience.
Issues
- On the consequences of digital currencies on banks: While it could reduce the need for maintaining deposits, the impact would be limited as they cannot pay interest.
- Key concerns: There are a few key concerns expressed by RBI:
- Whether digital currency should be used in retail payments or also in wholesale payments?
- Whether it should be a distributed ledger or a centralized ledger?
- Further, whether it should be token-based or account-based?
- Lastly, whether it should be directly issuance by the RBI or through banks and the degree of anonymity?
Terms to know:
