Discover why CBDC is crucial for the nation and how it can reshape the future of transactions.
In the rapidly evolving digital world, the concept of money is transforming. Central Bank Digital Currency (CBDC) is one of the most significant innovations in this field. Supported by the government, this digital currency has the potential to redefine our transaction methods. Countries worldwide are exploring the implementation of CBDC, signalling a move towards a financial revolution.
India has already demonstrated transformative power in the digital payment sector with its Unified Payments Interface (UPI) system. According to the National Payments Corporation of India (NPCI) data, the value of UPI transactions reached an all-time high of 17.16 trillion rupees in October, a 9% increase from September’s 15.8 trillion rupees.
The UPI has enabled secure and convenient transfer of funds. However, the initiation of CBDC takes this transformation to the next level, providing a more secure and regulated form of digital currency. This article will explore what CBDC is and how it can revolutionise transactions.
Reserve Bank of India (RBI) Governor Shaktikanta Das recently emphasised the significance of Central Bank Digital Currency (CBDC) in a discussion with Krishna Srinivasan, Director of the International Monetary Fund’s Asia-Pacific Department. A few days ago, Governor Shaktikanta Das engaged in a conversation on key issues in central banking with the RBI’s Chief. Governor Shaktikanta Das stated that CBDC is set to become the future currency of the world, and all central banks and countries need to work on CBDC.
He mentioned that the world is moving towards digital payments. While innovations like stablecoins and cryptocurrencies such as Bitcoin and Ethereum are present in the market with advanced technology levels, they are also more risky. We need to consider whether we are comfortable with these private currencies. These currencies can pose a threat to domestic financial stability as well as global financial stability. Hence, CBDC is essential.
It is worth noting that CBDC is in the pilot phase in India, with the pilot phase starting in November of last year.
What is Central Bank Digital Currency?
Central Bank Digital Currency, or CBDC, can be described as the digital form of paper currency. Unlike private currencies such as Bitcoin or Ethereum, which are not regulated by any regulatory authority, CBDC is issued and supported by the central bank, making it an official and reliable currency. CBDC facilitates transactions using a blockchain-supported wallet, providing the benefits of digital payments while ensuring the stability and security of the country’s official currency.
How CBDC Will Change the Future Financial Landscape?
Central Bank Digital Currency (CBDC) offers several benefits that can impact the financial system and the economy.
- CBDC makes payment and settlement processes faster and more efficient. Interbank transactions and cross-border payments can be settled in real-time, reducing processing time and operating costs.
- CBDC incorporates advanced cryptographic and security features, making it more resistant to fraud and deception. Users can trust the integrity of digital currency transactions.
- CBDC contributes to financial stability. During times of crisis, individuals and businesses may prefer to hold CBDC rather than withdraw cash from banks, reducing the risk of liquidity shortages.
- CBDC can potentially reduce transaction costs for businesses and consumers, especially in cross-border transactions. This could enhance economic efficiency and trade.
- CBDC transactions are recorded on a blockchain or digital ledger, providing transparency. This can assist in tackling issues like money laundering and tax evasion.
As countries progress with CBDC projects, the financial landscape will continue to develop. It will provide individuals and businesses with more skilled, inclusive, and secure resources for financial transactions and wealth management. However, this also comes with various challenges, including concerns about privacy, cybersecurity, and the impact on traditional banking.
Governor Shaktikanta Das emphasised that testing is ongoing, and we have much to learn. We are systematically moving forward, addressing any new challenges that arise. We are also engaging with other countries that are making similar efforts. He also mentioned that the importance of paper currency will persist in the future, serving as insurance in case of any technical crisis.
*This article is for informational purposes only. It is not investment advice.