Introduction:
It is a liability of the issuing central bank (and sovereign) and an asset of the holding public. Currency is fiat, it is legal tender. Currency is usually issued in paper form, but the form of currency is not its defining characteristic.
Functions of Money
• A medium of exchange.
• A standard of deferred payment.
• A store of wealth.
• A measure of value.
Reasons for Demand of Money:
• A transactions-related reason: People need money on a regular basis to pay bills and finance their discretionary consumption.
• A precautionary reason: People also need money for an unexpected needs in future like medical bill etc.
• A speculative reason: if they expect the value of such money to increase versus other asset classes.
Except as currency notes, all other use of paper in the modern financial system, be it as bonds, securities, transactions, communications, correspondences or messaging has now been replaced by their corresponding digital and electronic versions. Only the currencies are left in paper format.
Taking advantage of this, rapid mushrooming of private crypto currencies in the last few years has attempted to challenge the fundamental notion of money. To counter it and take other advantage of digital currency, Central Bank of all over the world including Reserve Bank of India is working on to roll out their own digital currency.
A Central Bank Digital Currency (E-rupee in case of India) is the legal tender issued by a central bank in a digital form. It is the same as a fiat currency and is exchangeable oneto-one with the fiat currency. Only its form is different.
This story is from the February 2023 edition of BANKING FINANCE.
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This story is from the February 2023 edition of BANKING FINANCE.
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