What is Central bank digital currency (CBDC)?

The Reserve Bank of India (RBI) is presently looking if the central bank digital currency (CBDC) is needed in India or not. Also, if there is a need for CBDC in India then how to operationalize it.

What is CBDC?

The central bank digital currency (CBDC) is an electronic currency that can be exchanged or converted at par with traditional central bank deposits and similarly denominated cash. It is a legal tender and a liability of a central bank in digital form denominated in a sovereign currency. It also appears on the balance sheet of the central bank.

Key Points

• Cryptocurrencies, Virtual currencies, and private digital currencies have gained a lot of popularity globally.
• Looking at this, RBI issued a statement that it is examining if CBDC is necessary for India or not.
• CBDC concept has also gained popularity and some countries are examining it.
• Turkey is one such country that would pilot digital currencies in the year 2021.
• In India also, CBDC has been a topic of discussion. In February 2020 RBI Bulletin, a survey of central banks conducted by the Bank for International Settlements was cited and it was pointed out that 80% of the 66 responding central banks are examining CBDC.

Last year, the Supreme Court of India also upturned the RBI’s decision to ban banks dealing with crypto exchanges. This has also presented opportunities for crypto exchanges in the country.