ecently, the Reserve Bank of India (RBI) issued a concept note on the Central Bank Digital Currency (CBDC). The note discusses the objectives, choices, benefits and risks of issuing a CBDC. The note also discusses the implications of issuing CBDCs on the banking system, monetary policy and financial stability, besides discussing the design choices, the underlying technology and possible uses.
Among the key motivations, the concept note positions CBDCs as a safe alternative to private virtual currencies. However, a one-on-one comparison between the two may not be appropriate. Private virtual currencies, such as Bitcoin, are seen more as assets than as a medium of exchange. They are largely seen as instruments to diversify risks.
A CBDC is a central-bank-issued digital money denominated in a sovereign currency. It is the same as cash but in digital form. It will be used as a medium of exchange rather than as an asset.
CBDCs could lead to greater financial inclusion and bring about innovations and efficiency in the payments system. It will, however, be important to address the offline functionality of CBDCs to enable mass adoption. Consultation with stakeholders and analysing international experience would help design CBDCs for universal access.
The note has rightly placed emphasis on consumer protection as an important pillar of financial stability. The adoption of a new digital form of money may give rise to different forms of consumer grievances such as technical disruption, frauds etc. Prompt and efficient framework for resolution of consumer grievances would build trust and facilitate adoption of CBDCs.
Read More at https://theprint.in/macrosutra/rbis-digital-rupee-concept-has-many-pros-but-also-some-risk-to-indias-financial-stability/1166411/
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