Central Bank Digital Currency: RSTV - Big Picture

If you're preparing for the UPSC exams, you might find the discussions on Rajya Sabha TV extremely enlightening. This article provides a summary of a RSTV debate on the Central Bank Digital Currency (CBDC). This topic is a crucial part of the UPSC syllabus , particularly the economy section.

Understanding Central Bank Digital Currency:

Host: Vishal Dahiya

Participants:

1. Ashok Nag, Ex-Advisor, RBI
2. A.K. Bhattacharya, Editorial Director, Business Standard

Background

The discussion was centered around the concept of ‘Central Bank Digital Currency and its potential impact on the banking system and the monetary policy framework.

Features of Currency:

• Currency, unlike Bitcoins , doesn't need third-party verification for transactions.
• A currency transaction between two parties is a complete transaction.
• The currency holder automatically becomes its beneficiary.

Central Bank Digital Currency (CBDC)

• CBDC is an electronic form of sovereign currency and appears as a liability (currency in circulation) on a central bank’s balance sheet.
• CBDCs should be exchangeable at par with cash.
• The underlying technology, form, and usage of a CBDC can be customized as per specific requirements.

Why CBDC?

• CBDCs are being considered as a more acceptable electronic form of currency in places where the usage of physical currency is declining.
• Central banks aim to cater to the public’s need for digital currencies, as reflected in the increasing use of private virtual currencies.

CBDC vs Other Digital Payments systems

• CBDCs are digital currencies and not digital payments.
• Transactions via CBDCs would not have any underlying physical aspect.

Physical Currency's Direct Cost

• The RBI incurs significant costs related to currency management, including printing, transportation, and storage.

CBDC and Monetary Policy Paradigm

• The leakage from commercial banks through cash can be largely controlled through CBDC.
• CBDC could allow the central bank to have better control over the liquidity in the economy.

Conclusion

• CBDC offers many benefits such as cost reduction and better central control over paper currency.
• The current banking system must be part of the CBDC Pilot projects in the Indian context.

You can find all the RSTV articles here.