RBI Governor suggested other central banks to promote CBDCs over stablecoin | Current Affairs | Vision IAS
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The suggestion comes in the backdrop of recent global developments such as Guiding and Establishing National Innovation for US Stablecoins Act (GENIUS Act), Digital Asset Basic Act bill of South Korea, etc.
About Central Bank Digital Currency (CBDC) and Stablecoin
- CBDC is a new form of money that exists only in digital form.
- Instead of printing money, the central bank issues widely accessible digital coins so that digital transactions and transfers become simple.
- A stablecoin is a programmable cryptocurrency whose value is pegged to another asset, most often the US Dollar or other currencies.
Why does CBDC need to be preferred over Stablecoin?
- Sovereign Backing: CBDC are considered legal tender, i.e. they are recognised and accepted by the government for every transaction.
- CBDCs operate within a regulated framework, ensuring consumer protection, etc. unlike many stablecoins which lack regulatory oversight.
- Cross-Border Payment Efficiency: CBDCs can simplify and speed up international trade payments, reducing reliance on intermediaries like SWIFT.
- Other: Better integration with monetary policy, promotes inclusive and low-cost public payment systems, etc.
RBI Governor suggested other central banks to promote CBDCs over stablecoin
The suggestion comes in the backdrop of recent global developments such as Guiding and Establishing National Innovation for US Stablecoins Act (GENIUS Act), Digital Asset Basic Act bill of South Korea, etc.
About Central Bank Digital Currency (CBDC) and Stablecoin
- CBDC is a new form of money that exists only in digital form.
- Instead of printing money, the central bank issues widely accessible digital coins so that digital transactions and transfers become simple.
- A stablecoin is a programmable cryptocurrency whose value is pegged to another asset, most often the US Dollar or other currencies.
Why does CBDC need to be preferred over Stablecoin?
- Sovereign Backing: CBDC are considered legal tender, i.e. they are recognized and accepted by the government for every transaction.
- CBDCs operate within a regulated framework, ensuring consumer protection, etc. unlike many stablecoins which lack regulatory oversight.
- Cross-Border Payment Efficiency: CBDCs can simplify and speed up international trade payments, reducing reliance on intermediaries like SWIFT.
- Other: Better integration with monetary policy, promotes inclusive and low-cost public payment systems, etc.
CBDC in India
- Digital Rupee is India’s CBDC.
- It is issued by the RBI in digital form and offers features similar to physical cash like convenience of use, guarantee of RBI, finality of settlement, etc.
- It is stored in the user’s digital wallet and can be used to receive / send money, and / or make payment for transactions, just like any physical ₹ note.
- The RBI is currently conducting pilot projects of two types of CBDCs – retail and wholesale.
- Retail CBDC: It is available to the general public via digital wallets, smartphone apps, etc.
- Wholesale CBDCs: Used among banks and other licensed financial institutions for interbank payments and securities transactions.
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