Central Bank Digital Currency (Virtual Form Of A Fiat Currency)

Over the last few years, there is growing interest in cryptocurrencies like Bitcoin, Litecoin and Dogecoin which work on a distributed ledger technology known as the block chain network.

- D. Surendranath

Background

Money is not everything in life but it is hard to imagine life without Money. Money is an object that is generally accepted as

• Payment for goods & services
• Medium of exchange
• Store value
• Repayment of a debt
• Unit for measurement of economy

Evolution of money to the present form

Cypto-currency is a type of digital currency that exists electronically. Such virtual currencies have gained immense popularity due to its decentralized and regulation-free nature. There is no transparent method about any suitable reserve maintenance to back up the valuation of crypto currency. The popularity and continued launch of new crypto currencies has also raised concerns about the possibility of scams, theft & hacks. The rise in use of cryptocurrencies is a possible threat to the banking system and Central Bank is also unable to control the growth & influence of such cryptocurrencies. Many Central Banks across the globe are working-on or intending to launch their own version of regulated digital currencies.

These regulated cryptocurrencies are called Central Bank Digital Currencies (CBDC) and will be operated by the respective monetary authority or Central Bank of a particular country.

Central Bank Digital Currency (CBDC) is centralized electronic record or digital token which represents the virtual form of a fiat currency. It belongs to a particular nation or region backed by a suitable amount of monetary reserves like gold or foreign currency reserves which is issued & regulated by the competent monetary Authority of a country.

Each CBDC unit will act as a

1. secure digital instrument equivalent to a paper bill

2. can be used as a mode of payment

3. a store of value