The Reserve Bank of India (RBI) is preparing to introduce Central Bank Digital Currency (CBDC). According to RBI Deputy Governor T Rabi Sankar, the digital monetary asset will be introduced in a phased implementation strategy.
According to Sankar, the CBDC is being introduced in place of other private digital assets such as cryptocurrency and will be a legal and legitimate form of virtual coin on par with its real-world counterpart. He went on to say that the central bank is putting together considerations for a legal framework that will allow the CBDC to coexist with cash and digital payment methods.
Having said that, it is important to note what exactly the Central Digital Bank Currency is, how it functions and what the RBI’s stance on it is.
As the name implies, a CBDC is essentially legal tender issued by the central bank. It has the same functional capabilities as a fiat currency and is exchangeable in nature in a one-to-one form with said fiat currency. The only difference is that it now takes the form of a digital form. It is important to distinguish it from existing private digital currencies such as Bitcoin and Ethereum, despite the fact that it is a digital currency. These private crypto assets have no legal issuers and cannot be considered money or currency, whereas the CBDC can.
The CBDC is the same as any other currency issued by a central bank – a sovereign currency issued but in an electronic form. At the end of the day this form of currency ends up on the Central Bank’s balance sheet as a currency in circulation.
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