WHAT IS CBDC?
CBDC is a digital form of currency notes issued by a central bank.
CBDC IN INDIA
- Pilot project for wholesale CBDC launched
- Banks settled G-sec transactions in wholesale pilot
- Pilot for retail e-rupee to be launched in a month
RBI STANCE
- CBDC aimed at complementing, rather than replacing, existing forms of money
- To provide an additional payment avenue to users
ACROSS THE GLOBE
- More than 60 central banks working on CBDC
- 10 countries have launched CBDCs
- Bahamian Sand Dollar: First CBDC launched in 2020
- China and South Korea among 17 countries to have launched CBDC pilots
- China first large economy to pilot a CBDC in April 2020
USE CASES
- Wholesale transactions
- Cross-border payments
- Consumer to merchant retail trade
BENEFITS
- Dependency on cash to come down
- Less currency management cost
- Reduced settlement risk
- Innovation in cross-border payments
- Lower transaction costs
- Adoption of block chain for financial services
- Enhancement of efficiency in the inter-bank market
CHALLENGES & RISKS
- Risks to financial stability, monetary policy, financial market structure
- Disintermediation of banking system
- Risks to cost and availability of credit
“If we want the digital euro to be attractive, it needs to be designed in a way that meets people’s privacy expectations. But full anonymity – such as offered by cash – does not appear a viable option. It would contravene other public policy objectives such as ensuring compliance with anti-money laundering rules and combating the financing of terrorism,” CHRISTINE LAGARDE President, European Central Bank.
“Increasing the CBDC interest rate past a point where it becomes a binding floor, increases deposit rates but leads to greater inequality of market shares in both deposit and lending markets and can reduce the responsiveness of deposit rates to changes in the IOR (interest on reserve) rate,” BIS RESEARCH PAPER.
“If all a CBDC did was to substitute for cash – if it bore no interest and came without any of the extra services we get with bank accounts – people would probably still want to keep most of their money in commercial banks,” BEN BROADBENT, Deputy Governor, Bank of England in 2016
For all the latest Business News Click Here
For the latest news and updates, follow us on Google News.
