Published on: September 6, 2023

Central Bank Digital Currency (CBDC)

Central Bank Digital Currency (CBDC)

Why in news?  At G20 TechSprint Finale 2023, Reserve Bank of India Governor mooted the idea that CBDCs can make efficient cross border payments


What is CBDC?

  • CBDC is the legal tender issued by a central bank in a digital form.
  • It is the same as a fiat currency and is exchangeable one-to-one with the fiat currency. Only its form is different.
  • The digital fiat currency or CBDC can be transacted using wallets backed by blockchain.

How will the digital retail rupee work?

  • User will be able to transact with e rupee through a digital wallet offered by the participating bank and store it in the mobile devices
  • Transaction can be person to person or person to merchant through QR code

Why do we need digital rupee?

  • To reduce the operational cost in managing physical cash and bring efficiency in payment system
  • To boost innovation in cross border payments
  • To address the concern over money laundering , terror financing ,tax evasion with private cryptocurrencies like bitcoin ,Ether etc

What is the difference between the RBI’s e-rupee/CBDC vs Crypto Currency And UPI?

  • CBDC is backed by a central bank or a sovereign nation, while the Crypto currency is considered like private money that is not backed by any sovereign entity.
  • There is not much difference in terms of payments as in both CBDC and crypto, payment settlement happens instantaneously.
  • In UPI transactions ,the settlement of transactions happens on the backend between two banks

What is fiat currency ?

  • Fiat currency is a type of currency that is not backed by a commodity, such as gold or silver.
  • It is typically designated by the issuing government to be legal tender
  • Ex: Dollar, Rupees and Euros etc