{"id":1667,"date":"2024-03-28T17:29:19","date_gmt":"2024-03-28T11:59:19","guid":{"rendered":"https:\/\/lotusarise.com\/qna\/?p=1667"},"modified":"2024-04-03T07:21:00","modified_gmt":"2024-04-03T01:51:00","slug":"q-with-reference-to-central-bank-digital-currencies-consider-the-following-statements","status":"publish","type":"post","link":"https:\/\/lotusarise.com\/qna\/upsc\/q-with-reference-to-central-bank-digital-currencies-consider-the-following-statements","title":{"rendered":"Q. With reference to Central Bank digital currencies, consider the following statements:"},"content":{"rendered":"\n<ol class=\"wp-block-list\">\n<li>It is possible to make payments in a digital currency without using US dollar or SWIFT system.<\/li>\n\n\n\n<li>A digital currency can be distributed with condition programmed into it such as a time-frame for spending it.<\/li>\n<\/ol>\n\n\n\n<p class=\"wp-block-paragraph\">Which of the statements given above is\/are correct?<\/p>\n\n\n\n<ul class=\"mcq wp-block-list\">\n<li>1 only<\/li>\n\n\n\n<li>2 only<\/li>\n\n\n\n<li>Both 1 and 2<\/li>\n\n\n\n<li>Neither 1 nor 2<\/li>\n<\/ul>\n\n\n\n<blockquote class=\"wp-block-quote is-layout-flow wp-block-quote-is-layout-flow\">\n<p class=\"wp-block-paragraph\"><strong>Answer: (c) Both 1 and 2<\/strong><\/p>\n<\/blockquote>\n\n\n\n<h5 class=\"wp-block-heading\" id=\"central-bank-digital-currency-cbdc\">Central Bank Digital Currency (CBDC)<\/h5>\n\n\n\n<ul class=\"wp-block-list\">\n<li>CBDCs (e-Rupee) are a digital form of a<strong>&nbsp;paper currency and unlike&nbsp;cryptocurrencies<\/strong>&nbsp;that operate in a regulatory vacuum, these are&nbsp;<strong>legal tenders issued and backed by a central bank.<\/strong><\/li>\n\n\n\n<li>It is the same as<strong>&nbsp;a&nbsp;fiat currency<\/strong>\u00a0and is exchangeable one-to-one with the fiat currency.\n<ul class=\"wp-block-list\">\n<li>A fiat currency is a national currency that is not pegged to the price of a commodity such as gold or silver.<\/li>\n<\/ul>\n<\/li>\n\n\n\n<li>It will be an&nbsp;<strong>electronic version of cash.<\/strong>&nbsp;It will be&nbsp;<strong>primarily meant for retail transactions.&nbsp;<\/strong><\/li>\n\n\n\n<li>It will be potentially available for use by all which includes the&nbsp;<strong>private sector, non-financial consumers and businesses.<\/strong><\/li>\n\n\n\n<li>It will be able to&nbsp;<strong>provide access to safe money for payment and settlement.<\/strong><\/li>\n\n\n\n<li>It will be the&nbsp;<strong>direct liability of the central bank.<\/strong><\/li>\n\n\n\n<li>The\u00a0<strong>digital fiat currency or CBDC<\/strong>\u00a0can be transacted using wallets backed by\u00a0<strong>blockchain.<\/strong>\n<ul class=\"wp-block-list\">\n<li>Though the concept of CBDCs was directly&nbsp;<strong>inspired by&nbsp;Bitcoin<\/strong>, it is different from decentralised virtual currencies and crypto assets, which are not issued by the state and lack the \u2018legal tender\u2019 status.<\/li>\n<\/ul>\n<\/li>\n\n\n\n<li><strong>Objectives:<\/strong>\n<ul class=\"wp-block-list\">\n<li>The main objective is to mitigate the risks and trim costs in handling physical currency, costs of phasing out soiled notes, transportation, insurance and logistics.<\/li>\n\n\n\n<li>It will also wean people away from cryptocurrencies as a means for money transfer.<\/li>\n<\/ul>\n<\/li>\n\n\n\n<li><strong>Significance of CBDC:<\/strong>\n<ul class=\"wp-block-list\">\n<li><strong>Cross-Border Transactions:<\/strong>\n<ul class=\"wp-block-list\">\n<li>CBDCs possess unique attributes that can<strong>&nbsp;revolutionize cross-border transactions.<\/strong><\/li>\n\n\n\n<li>Instant settlement feature of\u00a0<strong>CBDCs as a significant advantage,<\/strong>\u00a0making cross-border payments cheaper, faster, and more secure.\n<ul class=\"wp-block-list\">\n<li>Faster, cheaper, transparent, and&nbsp;<strong>inclusive cross-border payment services can yield substantial benefits<\/strong>&nbsp;for individuals and economies worldwide. These improvements can support economic growth, international trade, and financial inclusion on a global scale.<\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<\/li>\n\n\n\n<li><strong>Traditional and Innovative:<\/strong>\n<ul class=\"wp-block-list\">\n<li>CBDC can gradually<strong>&nbsp;bring a cultural shift towards virtual currency<\/strong>&nbsp;by reducing currency handling costs.<\/li>\n\n\n\n<li>CBDC is envisaged<strong>&nbsp;to bring in the best of both worlds:<\/strong>\n<ul class=\"wp-block-list\">\n<li>The convenience and security of digital forms like cryptocurrencies<\/li>\n\n\n\n<li>The regulated, reserved-backed money circulation of the traditional banking system.<\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<\/li>\n\n\n\n<li><strong>Financial Inclusion:<\/strong>\n<ul class=\"wp-block-list\">\n<li>The increased use of CBDC could be explored for many other financial activities to push the&nbsp;<strong>informal economy<\/strong>&nbsp;into the formal zone to ensure better tax and regulatory compliance.<\/li>\n\n\n\n<li>It can also pave the way for furthering financial inclusion.<\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<\/li>\n<\/ul>\n\n\n\n<h6 class=\"wp-block-heading\" id=\"cryptocurrencies\">Cryptocurrencies<\/h6>\n\n\n\n<ul class=\"wp-block-list\">\n<li>A cryptocurrency is a&nbsp;<strong>digital or virtual currency secured by cryptography<\/strong>, which makes it nearly impossible to counterfeit or double-spend.<\/li>\n\n\n\n<li>Many cryptocurrencies are&nbsp;<strong>decentralized networks<\/strong>&nbsp;based on blockchain technology\u2014a distributed ledger enforced by a disparate network of computers.<\/li>\n<\/ul>\n\n\n\n<h6 class=\"wp-block-heading\" id=\"stablecoins\">Stablecoins<\/h6>\n\n\n\n<ul class=\"wp-block-list\">\n<li>They are&nbsp;<strong>cryptocurrencies whose value is pegged<\/strong>&nbsp;or tied&nbsp;<strong>to that of another currency,<\/strong>&nbsp;<strong>commodity, or financial instrument<\/strong>.<\/li>\n\n\n\n<li>Stablecoins&nbsp;<strong>aim to provide an alternative to the high volatility<\/strong>&nbsp;<strong>of<\/strong>&nbsp;the most popular&nbsp;<strong>cryptocurrencies<\/strong>, including Bitcoin (BTC).<\/li>\n\n\n\n<li><strong>Unlike cryptocurrencies<\/strong>&nbsp;like Bitcoin,&nbsp;<strong>stablecoins\u2019 prices remain steady<\/strong>&nbsp;in accordance with whichever fiat currency backs them.<\/li>\n\n\n\n<li>E.g.,&nbsp;<strong>USDC stablecoin<\/strong>&nbsp;is&nbsp;<strong>backed by dollar<\/strong>-denominated assets.<\/li>\n<\/ul>\n","protected":false},"excerpt":{"rendered":"<p>Which of the statements given above is\/are correct? Answer: (c) Both 1 and 2 Central Bank Digital Currency (CBDC) Cryptocurrencies Stablecoins<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"_kad_blocks_custom_css":"","_kad_blocks_head_custom_js":"","_kad_blocks_body_custom_js":"","_kad_blocks_footer_custom_js":"","_kad_post_transparent":"","_kad_post_title":"","_kad_post_layout":"","_kad_post_sidebar_id":"","_kad_post_content_style":"","_kad_post_vertical_padding":"","_kad_post_feature":"","_kad_post_feature_position":"","_kad_post_header":false,"_kad_post_footer":false,"_kad_post_classname":"","footnotes":""},"categories":[1,3],"tags":[38],"years":[50],"class_list":["post-1667","post","type-post","status-publish","format-standard","hentry","category-upsc","category-prelims","tag-indian-economy","years-50"],"acf":[],"taxonomy_info":{"category":[{"value":1,"label":"UPSC"},{"value":3,"label":"Prelims"}],"post_tag":[{"value":38,"label":"Indian Economy"}],"years":[{"value":50,"label":"2023"}]},"featured_image_src_large":false,"author_info":{"display_name":"LotusArise","author_link":"https:\/\/lotusarise.com\/qna\/author\/team-lotusarise"},"comment_info":0,"category_info":[{"term_id":1,"name":"UPSC","slug":"upsc","term_group":0,"term_taxonomy_id":1,"taxonomy":"category","description":"","parent":0,"count":1269,"filter":"raw","cat_ID":1,"category_count":1269,"category_description":"","cat_name":"UPSC","category_nicename":"upsc","category_parent":0},{"term_id":3,"name":"Prelims","slug":"prelims","term_group":0,"term_taxonomy_id":3,"taxonomy":"category","description":"","parent":1,"count":1251,"filter":"raw","cat_ID":3,"category_count":1251,"category_description":"","cat_name":"Prelims","category_nicename":"prelims","category_parent":1}],"tag_info":[{"term_id":38,"name":"Indian Economy","slug":"indian-economy","term_group":0,"term_taxonomy_id":38,"taxonomy":"post_tag","description":"","parent":0,"count":225,"filter":"raw"}],"_links":{"self":[{"href":"https:\/\/lotusarise.com\/qna\/wp-json\/wp\/v2\/posts\/1667","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/lotusarise.com\/qna\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/lotusarise.com\/qna\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/lotusarise.com\/qna\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/lotusarise.com\/qna\/wp-json\/wp\/v2\/comments?post=1667"}],"version-history":[{"count":0,"href":"https:\/\/lotusarise.com\/qna\/wp-json\/wp\/v2\/posts\/1667\/revisions"}],"wp:attachment":[{"href":"https:\/\/lotusarise.com\/qna\/wp-json\/wp\/v2\/media?parent=1667"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/lotusarise.com\/qna\/wp-json\/wp\/v2\/categories?post=1667"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/lotusarise.com\/qna\/wp-json\/wp\/v2\/tags?post=1667"},{"taxonomy":"years","embeddable":true,"href":"https:\/\/lotusarise.com\/qna\/wp-json\/wp\/v2\/years?post=1667"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}