General Studies Paper 1 (Social Issues)
Question:- What is Central Bank Digital Currency (CBDC)? What would be its implications on the Indian society? Discuss. Answer in 250 words; 15 Marks
May 24, 2022
Answer:-

INTRODUCTION 

In general, currency is a system of money backed by a government.Typically made up of coins and paper notes, currency is a medium of exchange, meaning that it is the basis for various kinds of trade and transactions.A Central Bank Digital Currency is an electronic record or digital token of a country’s official currency. As such, it is issued and regulated by the nation’s monetary authority or central bank.


LINKAGE POINTS 

  • CBDCs are in various stages of development around the world. India’s own CBDC i.e. digital rupee will be launched in 2022-2023.
  • The impact of CBDCs is being researched upon. However, a digital rupee can have the following positive implications on Indian society in general:(start writing the positive side – how it can prove to be useful)

 

BENEFITS
1. It can simplify the implementation of monetary and fiscal policy and promote financial inclusion in the economy by bringing the unbanked into the financial system.
2. It will reduce the cost of printing, transporting and storing physical currency which can be used for the betterment and the development of the society.
3. It reduces the scope for counterfeiting of currency.
4. It can prevent illicit activity (drug trade, terrorism, human trafficking etc.) because it will exist in a digital format and will not require serial numbers for tracking.


CHALLENGES ASSOCIATED

1. With the prevailing digital divide, financial illiteracy, and inaccessibility to technology, a digital currency could lead to another form of an inequality in the society.
2. It doesn’t have the anonymity of cash transactions. Because it is a centralized form of currency, it may erode the privacy of citizens.
3. Criminals could hack and misuse information of people.
4. Acceptability as a new form of currency remains a question.


CONCLUSION

India has successfully transformed itself into a more inclusive society over the years with the innovative ideas of Aadhar, DBT, BHIM,UPI etc. Digital rupee holds the potential of transforming lives provided a proper regulatory framework is put in place and all sections of society are gradually included in the shift.