crypto | CBDC: Will CBDC be a gamechanger?


Money serves three functions: it’s a measure of value, a unit of account, and a medium of exchange. A government-backed currency should be regarded as a public good, and a public institution should be responsible for providing it.

With the emergence of new technology and constantly changing user needs, the way we make payments is headed for a massive upgrade. In many economies, cash is now seeming to disappear, paving the way for a new form of payment system that is largely digital.

It is on these lines that the term Central Bank Digital Currency (CBDC) has started to gain traction and attention of central banks and financial and tech enthusiasts alike. A CBDC is a legal tender issued by a bank in a digital format. Also known as digital base money or digital fiat currencies, a CBDC is no different from hard cash, apart from the fact that they are in a digital or virtual form.



It is not meant to replace hard cash, but coexist as an additional form of payment method. With the advancement in cryptography and communications technology, central banks are trying to create secure computer-code equivalents of the conventional money that can be credited to public accounts – securely and rapidly – just like conventional money.

The emergence of CBDC happens at a time when there is a constant rise in popularity of cryptocurrencies such as Bitcoin , Ethereum, Tether, Dogecoin etc. However, unlike these private cryptocurrencies, CBDCs are centralised and legal tenders issued by central banks.

RBI and its CBDC

RBI recently said that it is working towards a ‘phased’ launch of a CBDC. It believes that the cost of issuing digital currencies is far lower compared with the cost of printing and distributing hard cash.

Earlier this year, on July 22, while addressing a conference, RBI Deputy Governor T Rabi Sankar said the new digital currency would lower our reliance on cash and further enable cheap and smooth international settlements. He said the RBI-backed currency will protect people from the volatility of the private digital currencies now operational on the web.

“Private virtual currencies sit at substantial odds to the historical concept of money. They are not commodities or claims…

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