CBDC Cryptocurrency : The main things to know. What is CBDC, Benefit of CBDC

The things to know about CBDC

The RBI thinks that the time for CBDCs is near, so many things you know about money or how you traded it will change in the next few days! 

The Reserve Bank of India (RBI) plans to introduce India’s own Central Bank Digital Currency (CBDC) in a phased manner, which does not seek to curb the “detrimental effects” of private virtual currencies but may affect bank deposits. CBDC is India’s sovereign regency in electronic form.

Speaking in a webinar hosted by the Vidya Center for Legal Policy on Thursday (July 22, 2021), RBI Deputy Governor T Rabi Shankar said that the Central Bank is currently working on a “step-by-step implementation strategy and reviewing use cases with little or no disruption.” ”. 

The RBI is currently reviewing the scope of CBDCs, the underlying technology, the validation mechanism, the delivery architecture, and the level of anonymity. “However, pilots in the wholesale and retail sectors are more likely in the future,” he said.

The RBI Deputy Governor thinks that the advent of private virtual currencies has necessitated the introduction of the CBDC.

“Developing our own CBDC can provide the public with the benefits any private VC can offer and to that extent maintain the public preference for the rupee.

 

What are the Benefits of CBDC Cryptocurrency?

According to the RBI Deputy Governor, the introduction of CBDC has been beneficial in many ways. He said the CBDC “has the potential to provide significant benefits such as lowering the reliance on cash, higher signage due to lower transaction costs, lower settlement risk.”

“The introduction of CBDC will lead to the selection of more robust, efficient, reliable, regulated, and legal tender-based payments. There are combined risks, no doubt, but they must be carefully evaluated against potential benefits. This is an attempt by the RBI, ”Shankar said.

“CBDCs are likely to be in each central bank’s arsenal. This requires careful calibration and a delicate approach to implementation. Technical challenges have their significance. As said, every idea has to wait for its time. Maybe the timing of CBDCs is close, ”he said.

The RBI Deputy Governor said that CBDCs have some obvious advantages over other digital payment systems. He said “Payments using CBDCs are final and therefore reduce the risk of settlement in the financial system. Imagine the UPI system, where CBDC trades instead of bank balances, as cash is handed out – the need for an interbank settlement disappears. 

 

What is the Impact on bank deposits from CBDC?

According to the RBI Deputy Governor, since CBDC is an unpaid currency, its impact on bank deposits may be “virtually” limited.

“Depositors who need CBDCs for trading purposes are more likely to sweep day-end balances into interest-earning deposit accounts,” he said.

 

What is the difference between CBDCs and virtual currencies?

The RBI deputy governor has defined the CBDC as “a legal tender issued by the central bank”. It is similar to Fiat currency and can be exchanged one by one with Fiat currency. Only its form is different ”
 
However, the CBDC cannot be compared to private virtual currencies that have emerged as moths over the past decade, he said.
 
He said, “Private virtual currencies sit in considerable contradiction to the historical concept of money. They are not commodities or rights on goods because they have no intrinsic value; Some claims that they are similar to gold are clearly opportunistic.
 
 
 
Is CBDC to complement fiat currency?
 
Commenting on RBI’s CBDC project, Edul Patel, CEO, and co-founder of Mudrex said, “The exponentially growing adoption and support of cryptocurrencies worldwide has forced countries to think of smarter ways to become part of this pie. The RBI Deputy Governor emphasized that these currencies are less volatile than cryptocurrencies and should not be a mystery.
 
Sajay Singh, Partner of J Sagar Associates, said: “RBI is moving in the right direction with regard to digital currencies. Any RBI-backed digital currency comes with low volatility and a high-security guarantee for its holders. This is very different from cryptocurrencies such as Bitcoin and Ethereum, which are very popular but have a myriad of risks. Also, RBI’s support for digital currency ensures its financial stability. It is similar to say the potential digital euro and digital yuan. 
 
 

What is the CBDC impact on virtual currencies like Bitcoin, Dogecoin, Matic, etc?

 
According to Patel, CBDCs can have a very little direct impact on private digital currencies such as Bitcoin, Matic, Doge, etc. These private cryptocurrencies are based on ‘decentralization’. “Sovereign digital currencies are in complete contrast to decentralization because central banks control and regulate them. However, as CBDCs begin to adopt more, people learn more about private cryptocurrencies.” He told FE Online.

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