A video explaning Central Bank Digital Currency and how it is different from other digital systemse
Last week, Reserve Bank Deputy Governor T. Rabi Sankar in a speech touched upon the international context of the CBDC, like he did in July 2021 too.
The CBDC, the Indian government has said, would be introduced this year. The Central Bank Digital Currency (CBDC) is currency in digital form. It has sovereign approval and hence is called fiat currency, just like currency notes that come with the RBI Governor’s certificate of authenticity.
CBDCs have some clear advantages over digital systems – payments using CBDCs are final and thus reduce settlement risk in the financial system. If you buy fruits from a roadside vendor and pay using an app such as BHIM or Google Pay or PhonePe that use the government-enabled Unified Payment Interface (UPI) system, you send money from your bank account to the fruit vendor’s account. So intermediaries, in the form of banks, are required.
But what if, like you used to earlier, you withdraw cash from your account and use it to pay the vendor? CBDC transactions will be similar to physical cash transactions.
Given the success of the UPI, is there a case for CBDC in India? How can CBDCs help with international transactions?