Er.R.Vinothkumar from TamilBTC
What is CBDC?
CBDC stands a Centrally Backed Digital Currency Just like a physical note, CBDC will be: — Legal Tender — Liability of the RBI to return us that money
— Our legal obligation to accept it
— Freely convertible against commercial bank
money Symbol: e₹
Features of CBDC?
A. You won’t need a bank account for transacting
B. Lower cost of issuance vis-a-vis notes
C. Negligible risk of being stolen or torn vis-a-vis notes
How will it be different from UPI?
— No time required for settlement amongst banks
— No need of having a bank account Hence, improving financial inclusion
— Substitute of cash
Need for CBDC
A. Security over bank deposits
While our bank balances are insured up to ₹5Lakhs But since CBDC is CENTRALLY BACKED, it is the government’s liability to return us each and every penny Well,
B. Reduction in cost associated with physical cash management Did you know
Govt incurred ₹4,984.80 Cr. for just printing money
CBDCs will help in reducing cost of:
— Reconciliation (and delay)
- + Environment Friendly!
C. No Settlement Risk
— In an online payments system, banks need to settle transactions amongst themselves
— CBDC will eliminate this by giving choices to market participants to choose among various settlement options
- Payments using CBDCs are final and reduce settlement risk
D. Improved Cross-Border Payments Scenario
India is the world’s largest recipient of remittances as it received $87 billion in 2021
— High costs
— Slow speed
— Limited access and
— Insufficient transparency
are some challenges which CBDC will endeavour to solve.
E. Support Financial Inclusion
Despite measures taken like ‘Jan Dhan Yojana’ and UPI
our score at the Financial Inclusion Index is quite low
CBDCs will solve the problems like:
— Poor bank infra availability in remote areas,
— Poor connectivity etc,
F. Ensure end-use utilisation
CBDC is programmable. The trail of money can be tracked
It will be easy for govt to ensure that subsidy released has not been siphoned-off
And indeed used for the purpose intended
E.g. To track subsidy for fertilizer is used for its purchase only
G. Reduced Threats From Western Sanctions
Countries keep their foreign reserves in US Dollars and Gold Reserves
The West recently froze Russian assets held in such reserves
CBDC will help us from such future sanctions..
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