{"id":2418,"date":"2025-05-01T19:55:12","date_gmt":"2025-05-01T14:25:12","guid":{"rendered":"https:\/\/lotusarise.com\/qna\/?p=2418"},"modified":"2025-05-01T19:58:11","modified_gmt":"2025-05-01T14:28:11","slug":"q-consider-the-following-statements-in-respect-of-the-digital-rupee","status":"publish","type":"post","link":"https:\/\/lotusarise.com\/qna\/upsc\/q-consider-the-following-statements-in-respect-of-the-digital-rupee","title":{"rendered":"Q. Consider the following statements in respect of the digital rupee:"},"content":{"rendered":"\n
    \n
  1. It is a sovereign currency issued by the Reserve Bank of India (RBI) alignment with its monetary policy.<\/li>\n\n\n\n
  2. It appears as a liability on the RBI\u2019s balance sheet.<\/li>\n\n\n\n
  3. It is\u00a0insured against inflation<\/strong>\u00a0by its very design.<\/li>\n\n\n\n
  4. It is freely convertible against commercial bank money and cash.<\/li>\n<\/ol>\n\n\n\n

    Which of the statements given above are correct?<\/p>\n\n\n\n

      \n
    • 1 and 2 only<\/li>\n\n\n\n
    • 1 and 3 only<\/li>\n\n\n\n
    • 2 and 4 only<\/li>\n\n\n\n
    • 1, 2 and 4<\/li>\n<\/ul>\n\n\n\n
      \n

      Answer: (d) 1, 2 and 4<\/strong><\/p>\n<\/blockquote>\n\n\n\n

      Digital Rupee or e\u20b9<\/h5>\n\n\n\n
        \n
      • Digital Rupee or e\u20b9, is\u00a0India\u2019s Central Bank Digital Currency (CBDC)<\/strong>. It is\u00a0legal tender<\/strong>\u00a0and\u00a0is the liability of Reserve Bank of India<\/strong>\u00a0(as per Section 26 of the Reserve Bank of India Act, 1934).<\/li>\n\n\n\n
      • It is the\u00a0digital form of India\u2019s physical currency<\/strong>, the Rupee (\u20b9). e\u20b9 is\u00a0issued by the Reserve Bank of India (RBI) in digital form<\/strong>\u00a0and offers features similar to physical cash like convenience of use, guarantee of RBI, finality of settlement, etc.<\/li>\n\n\n\n
      • e\u20b9 is stored in the user\u2019s digital wallet and can be used to receive \/ send money, and \/ or make payment for transactions<\/strong>, just like any physical \u20b9 note.<\/li>\n\n\n\n
      • e\u20b9 can be held and transacted through\u00a0e\u20b9 wallets offered by banks and non-banks for person-to-person payments or person-to-merchant transactions<\/strong>.\n
          \n
        • One can start using the e\u20b9 wallet by downloading the e\u20b9 app from the Play Store or the App Store and by following the App instructions. Detailed instructions on using the e\u20b9 wallet can be checked with the banks and non-banks providing the wallet.\u00a0Payments to merchants can be made by scanning either the CBDC QR code or the UPI QR code available<\/strong>\u00a0at the respective merchant location.<\/li>\n<\/ul>\n<\/li>\n\n\n\n
        • The digital rupee itself is\u00a0not inherently protected against inflation<\/strong>. Its value can fluctuate depending on various economic factors, just like physical rupees.<\/li>\n\n\n\n
        • Wholesale Central Bank Digital Currency (e\u20b9-W)<\/strong>:\n
            \n
          • Wholesale Central Bank Digital Currency (e\u20b9-W) is\u00a0designed for use by financial institutions and intermediaries, primarily to streamline interbank settlements and large-value transactions<\/strong>.<\/li>\n\n\n\n
          • It operates within a restricted ecosystem and enhances the efficiency, speed, and security of wholesale payment systems by using the functionalities of programming and smart contracts.<\/li>\n\n\n\n
          • Wholesale CBDC focuses on\u00a0improving the financial system\u2019s infrastructure and reducing settlement risks, retail CBDC aims to enhance accessibility, financial inclusion, and convenience for individuals \/ businesses<\/strong>. Retail CBDC is intended for the general public and is used for everyday transactions, much like physical cash but in digital form.<\/li>\n\n\n\n
          • There are two ongoing use cases of e\u20b9-W,\u00a0(i) funds settlement of secondary market transactions in Government Securities, and (ii) settlement of inter-bank lending and borrowing in call money market.\u00a0<\/strong>Settlement in central bank money is expected to reduce transaction costs by pre-empting the need for settlement guarantee infrastructure or for collateral to mitigate settlement risk and benefitting from the programmability and smart contracts functionalities of e\u20b9-W.<\/li>\n<\/ul>\n<\/li>\n<\/ul>\n\n\n\n
            Central Bank Digital Currency (CBDC):<\/h6>\n\n\n\n
              \n
            • CBDCs are a digital form of a\u00a0paper currency and unlike\u00a0cryptocurrencies<\/strong>\u00a0that operate in a regulatory vacuum, these are\u00a0legal tenders issued and backed by a central bank.<\/strong><\/li>\n\n\n\n
            • It is the same as\u00a0a\u00a0fiat currency<\/strong>\u00a0and is exchangeable one-to-one with the fiat currency.\n
                \n
              • 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
              • The digital fiat currency or CBDC can be transacted using wallets backed by\u00a0blockchain.<\/strong><\/li>\n\n\n\n
              • Though the concept of CBDCs was directly\u00a0inspired by\u00a0Bitcoin<\/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\n\n\n
              • Objectives:<\/strong>\n
                  \n
                • 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
                • It will also wean people away from cryptocurrencies as a means for money transfer.<\/li>\n<\/ul>\n<\/li>\n\n\n\n
                • Types of CBDCs<\/strong>:\n
                    \n
                  • Wholesale CBDCs:<\/strong>\u00a0Used\u00a0among banks and other licensed financial institutions<\/strong>\u00a0for interbank payments and securities transactions.<\/li>\n\n\n\n
                  • Retail CBDC:<\/strong>\u00a0It is available\u00a0to general public via digital wallets<\/strong>, smartphone apps, etc. Two models of retail CBDC:\n
                      \n
                    • Token-based CBDCs:<\/strong>\u00a0Enables anonymous transactions through private and public key authentication.<\/li>\n\n\n\n
                    • Account-based CBDCs<\/strong>: Requires user digital identification for account access. e.g., DCash of Eastern Caribbean.<\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<\/li>\n\n\n\n
                    • Global Trends:<\/strong>\n
                        \n
                      • Bahamas has been the first economy to launch its nationwide CBDC<\/strong>\u00a0\u2014 Sand Dollar in 2020.<\/li>\n\n\n\n
                      • Nigeria is another country to have roll out eNaira in 2020.<\/li>\n\n\n\n
                      • China became the world\u2019s first major economy to pilot a digital currency e-CNY in April 2020.<\/li>\n<\/ul>\n<\/li>\n<\/ul>\n","protected":false},"excerpt":{"rendered":"

                        Which of the statements given above are correct? Answer: (d) 1, 2 and 4 Digital Rupee or e\u20b9 Central Bank Digital Currency (CBDC):<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"closed","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":[49],"class_list":["post-2418","post","type-post","status-publish","format-standard","hentry","category-upsc","category-prelims","tag-indian-economy","years-49"],"acf":[],"taxonomy_info":{"category":[{"value":1,"label":"UPSC"},{"value":3,"label":"Prelims"}],"post_tag":[{"value":38,"label":"Indian Economy"}],"years":[{"value":49,"label":"2024"}]},"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\/2418","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=2418"}],"version-history":[{"count":0,"href":"https:\/\/lotusarise.com\/qna\/wp-json\/wp\/v2\/posts\/2418\/revisions"}],"wp:attachment":[{"href":"https:\/\/lotusarise.com\/qna\/wp-json\/wp\/v2\/media?parent=2418"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/lotusarise.com\/qna\/wp-json\/wp\/v2\/categories?post=2418"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/lotusarise.com\/qna\/wp-json\/wp\/v2\/tags?post=2418"},{"taxonomy":"years","embeddable":true,"href":"https:\/\/lotusarise.com\/qna\/wp-json\/wp\/v2\/years?post=2418"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}