Current Affairs 2022: Central Bank Digital Currency Code Explained

By Ankita Rawat

Recently Central Bank Digital Currency Code was proposed by the Reserve Bank of India. Read further to know th details of the proposed code.

RBI has proposed amendments to the Reserve Bank of India Act, 1934, that would allow the launching of a Central Bank Digital Currency and enhance the scope of the definition of ‘bank note’ to include currency in digital format.

The proposal has come amid the government's plans to introduce the Bill on cryptocurrencies in the current Parliament that seeks to prohibit all private cryptocurrencies in India with certain exceptions.

Pankaj Chaudhary, Minister of State For Finance stated that the government has received a proposal from RBI in October 2021 for the implementation of the Reserve Bank of India Act, 1934 to improve the scope of the ‘bank note’ definition to incorporate currency in digital form. In July 2021, Deputy Governor of RBI, T Rabi Sankar said in a speech that, RBI has been working on a framed implementation strategy and reviewing use cases for the introduction of Central Bank Digital Currency with few or no disruptions.

Meaning of CBDC

CBDC stands for the digital form of the country’s authorized currency issued by the central bank of the country. It's in a digital form but can be exchanged with the authorized currency of the country, this money is considered as the liability of the central bank.

Central Bank Digital Currency is a digital form for cash that means it offers the same value and convenience as a cashless payment tool that can be used these days for eg, credit transfers, card payments, direct debits, and more. All the transactions are recorded under a centralized ledger and central banks have full power oversupply. As per a report by the BIS (Bank for International Settlements), Central Bank Digital Currency can have a combination of factors that has universal access in an electronic form and have a support of a central bank.

Need for CBDC in India

The main reason to implement CBDC is to combat the unaccountability and volatility of cryptocurrencies as CBDCs are regulated and issued by the central bank, which is the principal monetary authority.

CBDCs will keep the benefits of being digital like reduced settlement risk, printing cost, avoidance of time, and cost-effective globalization of payment systems. India’s GDP too high currency ratio has another advantage of CBDCs, the large transactions can be replaced with large cash usage. The introduction of Central Bank Digital Currency can lead to a more robust, trusted, efficient, legal, and regulated tender-based payment option.

Not only India but other countries are also considering Central Bank Digital Currency. The advancement of digitalization has sparked crypto-mania around the world, fostering concern among all central banks in respect to the lack of regulations and accountability in cryptocurrencies, which has illuminated the require to have a ‘regulated’ digital currency. According to BIS January 2021 survey, nearly 86% of the central bank was actively involved in researching Central Bank Digital Currency, while 60% were experimenting with the underlying technology and 14% were in the pilot-project phase.

Finance Minister Nirmala Sitharaman said the centre is not planning to recognize popular cryptocurrency Bitcoin as Indian currency and cannot accept Government does not accept Bitcoin transactions.

In India, the use of cryptocurrencies has no regulation as of now, the Bombay High Court headed the Centre to the introduction of Bill on cryptocurrency and take actions on Jan 22,22.

The development of the Digital Rupee in India will provide an opportunity to citizens by enabling an ever-expanding digital economy and getting away from the outdated system of banking. Examining its impact on liquidity, macroeconomy, money markets and banking systems, policymakers need to consider the benefits of the Digital Rupee in India.

Benefits of Central Bank Digital Currency

CBDC reduces the cost of currency management by permitting real-time payments excluding any inter-bank settlement.
India’s high currency to GDP ratio is another positive impact of CBDC to increase large cash usage that will be replaced by CBDC including transporting and storing paper currency, cost of printing will be substantially reduced.

Eliminate the damage to the public from the use of private e-currencies, enable the users to carry out domestic as well as cross border transactions & do not need any third-party interventions.

CBDC can provide important benefits like higher minting due to lower transaction costs, reduced dependency on cash, and less settlement risk.
CBDCC will lead to more efficient, regulated, trusted, robust, and legal tender-based payment options.

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About the Author

  Ankita Rawat is doing graduation in BA(JMC) from JIMS Vasant Kunj, New Delhi.