Hi, Hello and welcome to the new series of Drista IS. I am Pooja. In the segment we are going to discuss RBI’s digital currency. So, we shall look ahead towards this segment. Whenever we have to deal with what about this digital currency. What are the advantages or the necessities of it? What is the challenge with respect to launching of this currency and the usage and in the last of the segment, way forward and a question.
So, as you these are the many topics we are going to touch through in this entire segment from the perspective of GS mains paper treats very important apart from that preliminary facts are important so try to understand both the concept and the facts explain CBDC the digital rupee that RBI could introduce this year and how it will help so in the budget speech of 2223 we saw new ventures with respect to cryptocurrencies when the union government taxed the cryptocurrency profits but it also announced the budget also announced that we are going to have our own digital rupee now India is one of the countries which is expanding economically and we need to enter into new innovations to keep up with the world and hence we will discuss this scenario with respect to digital currency in the world as well moving ahead as we see this is the money flower Which shows us what is the characteristic of a digital currency.
It should be universally accessible plus acceptable. It should be electronic in nature that means it should be running through digital forms. It is central bank issued. So here I am not talking about cryptocurrency but digital money. Digital currency and peer to peer exchange should also be there. It should be easily exchangeable.
Also, if we define digital currency, it can be defined as a currency that is only access with computers or mobile phones. It is not physical in nature. They only exist in electronic form and the good thing is that digital currencies do not require intermediary. So, intermediary cost gets slashed. Apart from that, it is often the cheapest method for trading of currency.
And one thing that we all have to keep in mind over here, all cryptocurrencies are digital currencies but not all digital currencies are cryptocurrency. Here it means cryptocurrency are those currencies which work in an encrypted format through blockchain technology. Digital currency on the other hand might not need to be encrypted. Okay, so that is the that is the difference. That is why it is said all cryptocurrency because they are occurring in digital format.
They are digital currency but due to the absence of ah encryption or digital currencies are not cryptocurrencies. Let’s have a look on the examples. Bitcoin is a digital currency, cryptocurrency, Ethereum, Cardano, and polka dot these are several examples also if we have a discussion with respect to central bank digital currency then we understand that it is a legal tender that means it is acceptable throughout India because it is backed by the RBI because it is issued by a central bank in a digital format it is same as fiat currency what is a fiat currency now here I have a picture with respect to fiat currency you can see fiat money is a government issued currency that means it is issued by the government and it is backed by the administration and not the physical commodity like gold or silver it does not have a backing of any commodity,
like gold and silver but it is it’s value is purely based on the concept that administration is backing it and hence it is acceptable to the entire country and it is exchangeable the central bank digital currency one to one with the Fiat currency the digital feat currency or CBDC can be transacted through wallets backed by blockchain through blockchain technology I have taught you about the blockchain technology in one of my segments and I will provide you with the description ah link of it in the description box itself please go through it now if we talk about the need of it then first is the convenience and security of digital form as it is hard sometimes and unsafe sometimes to carry a brief case full of money through physical form ,
so what happens if you can of course have an access to a digital format you can easily have the access of a digital account and hence have transactions through the digital currency the regulated reserved backed money circulation of the traditional banking system see the current system has a lot of investment with respect to providing a proper physical infrastructure for ah for saving such currencies if they become in a digital format part of it not the entire one might and not be you know converted into digital currency but part of it it will help save the infrastructure.
Mitigate the risk of losses that Indian depositors face with respect to failing of banks. Other than that safer alternative to bank deposit this is for Indians who are working abroad it will be easier to send remittances in the form of digital currency. Right so there are so many important efficient and time saving characteristics of digital currency. Reduce dependent on cash not if digital currency becomes highly acceptable to everybody in India almost everyone suppose 80% of the population this is the hypothetical situation as of now so what will happen there will be a reduced dependency on cash and the money that goes into printing of the cash transferring it safety issues that are involved in in it risk issues that are involved in it that will be lessened reduce settlement risk assual sometimes it might checks gets bounced or draft does not get accepted in banks.
So, settlement risk also becomes lessen between two parties or more than two parties. Also, if we of course no need to know about the scenario of the world. That means which countries are doing what in case of digital currency. 81 countries representing over 90% of global GDP. They are exploring CBDCs. In which 14 countries, they have tested pilots, pilots. That means they have launched it at a lesser scale such as China, the EU one of it, South Korea, England and Sweden’s E corona.
16 countries such currencies are in development phased in 16 countries. 32 countries in the research phase which includes USA, UK and Mexico, the Bahamas, Nigeria and seven countries in Eastern Caribbean Union. They have already launched a centrally governed digital currency. Now, if we talk about Russia, then Russia is talking about launching the digital soon. Apart from that China, China has said that it needs a widespread usage of EUI by this year only twenty twenty-two.
Same as with Japan the year for it is twenty twenty-two. Whereas Pakistan wants to launch its digital currency by the year twenty twenty-five. Now as we move ahead let’s talk about the challenges that are involved. Weaker banks may struggle to retail low cost deposit. How is it going to happen? Now in case the banks which have already weakened right now which are already in a weaker phase right now if they tend to not have a lot of cash with respect to maintaining the infrastructure and only have digital currency while it is not widely accepted ,
that could cause them harm for a short period of time upgraded hacking if hackers upgrade themselves with respect to getting into the digital accounts of the depositors that can wreak havoc we all know that is a deep web which has a lot of tools that could infiltrate into our accounts digitally so we do not right now have a data protection bill and integrity of the depositors can also be at risk apart from that dwindling use of bank notes there is already a dwindling use of bank notes and what about the industries which are dependent on bank notes their work is to print cash so the people who are involved respect to the employment and the infrastructure will be getting challenged.
Less anonymity. As the CBDC as you use CBDC, the banks will be able to know who is depositing what. So there is also a lack of anonymity. That can span from the entire from one person to the entire population. And this is a good thing as well, also a challenge with respect to privacy. Way forward is there is a need to popularize electronic platform currency specifically in the rural areas where digital penetration is not a lot and as there is a digital divide we also know that a protocol for offline use has to be worked out that means you can pay in the offline mode as well where data ah where internet penetration is not very satisfactory apart from that we need to have strict KYC norms know your customer norms have to be widened it has to ensure that it you know it can track in body and here I am trying to say that in case money launderings occur in case terrorist financing occur through digital currencies.
KYC norms should be ah you know loophole less enough or they should not have any gaps so that anybody can bypass those loophole to do such things such as money laundering and terror financing. Data protection act needs to come into the picture so that privacy of the individuals remain at the utmost important stage according to article twenty-one. Now Let’s look at the question.
This question is for your prelims. Question, this is a prelims question for you to answer in the common segment so that I could take your names. With reference to blockchain technology, consider the following statements. It’s a it’s a public ledger that everyone can inspect but which no single user controls. The structure and design of blockchain is such that all the data in it are about cryptocurrency only and the application that depends.
On basic feature of blockchain can be developed without anybody’s permission. We have to select the correct answer. So yesterday I asked you a question with respect to the place which receives the lowest amount of rainfall. For that I wish to tell you Jaisarmir is the correct answer apart from that. Hissar and Nadak are also ah two of the places which receive very less rainfall but Jaisarmir is the correct answer.Kishanveer is the ah Kishanveer has answered it correctly. Radhi has answered it correctly.
Vikash, Mohan Khan, ah Jaswinder, also Pulchant, Shashank has answered it correctly then Ladakh is also one of the regions but Jaisal Mehra’s first Alogdik then we have Kiran Shubmanik Raghav also Alkatrapati yes inward it’s Chile also if we ah talk about other people Daksha has answered it correctly Priyanka has answered it correctly Khushwant has answered it correctly then Fazur answered it correctly and Anuj has answered it correctly. So, answer this question as well for your name to come up in next segment.
