Consider the following statements in respect of the digital rupee:It is a sovereign currency issued

Question

Consider the following statements in respect of the digital rupee:It is a sovereign currency issued by the Reserve Bank of India (RBI) in alignment with its monetary policy.It appears as a liability on the RBI’s balance sheet.It is insured against inflation by its very design.It is freely convertible against commercial bank money and cash.Which of the statements given above are correct?

Accepted Answer

The Reserve Bank of India defines CBDC as the legal tender issued by a central bank in a digital form. It is the same as a sovereign currency and is exchangeable one-to-one at par (1:1) with the fiat currency. While money in digital form is predominant in India—for example in bank accounts recorded as book entries on commercial bank ledgers—a CBDC would differ from existing digital money available to the public because a CBDC would be a liability of the Reserve Bank, and not of a commercial bank.The features of CBDC include:CBDC is a sovereign currency issued by Central Banks in alignment with their monetary policy. Hence statement 1 is correct.It appears as a liability on the central bank’s balance sheet. Hence statement 2 is correct.Must be accepted as a medium of payment, legal tender, and a safe store of value by all citizens, enterprises, and government agencies.Freely convertible against commercial bank money and cash. Hence statement 4 is correct.Fungible legal tender for which holders need not have a bank account.Expected to lower the cost of issuance of money and transactions.CBDC, like the physical currency, is not inherently insured against inflation. However, the data collected through CBDCs has the potential to be paired with strict reserve requirements for commercial banks, creating a theoretical framework for inflation control. Hence statement 3 is not correct.