A central bank digital currency (CBDC) is a type of digital money that is issued by a nation's central bank. The country's government has legal control over it. CBDC is dependent on a centralized organization, unlike crypto. It also goes by the name "digital fiat currency" for this reason.
According to the RBI, CBDC is a central bank's digitally issued legal tender. It is identical to fiat money and can be used interchangeably with it. Its only distinction is in form.
The concept of CBDCs, albeit strongly influenced by Bitcoin, differs from decentralized virtual currencies and crypto assets because they are issued by the government and have the status of "legal currency."
While some CBDCs are in the proof-of-concept stage, most are now in the hypothetical stage. Digital currencies are being considered by more than 80 central banks. The digital RMB from China was the first digital money to be issued by a significant economy. Currently, RBI, India's central bank, has also introduced its own CBDC - Digital Rupee.
Nine banks are taking part in this pilot initiative, including the State Bank of India, Bank of Baroda, Union Bank of India, HDFC Bank, ICICI Bank, Kotak Mahindra Bank, YES Bank, IDFC First Bank, and HSBC.
Advantages of CBDCs
With the aid of CBDCs, consumers can conduct domestic and international transactions without the need of a third party or bank.
The adoption of CBDC has the potential to have a number of advantageous effects, such as a reduction in the use of cash, an increase in seigniorage (profit gained by a government through currency issuance), decreased transaction costs, and reduced settlement risk. A more dependable, efficient, dependable, controlled, and legal tender-based payment method may result from the introduction of CBDC.
