digital currency essay in english

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Cashless: Is Digital Currency the Future of Finance?

If the U.S. wants to future-proof banking, then a digital dollar could be a solution.

April 17, 2024

Finance experts like Darrell Duffie see digital currency as an inevitability. “It’s hard to imagine that 100 years from now, people will be reaching into their pockets and pulling out grubby bits of paper,” he says.

As the Adams Distinguished Professor of Management and Professor of Finance at Stanford Graduate School of Business, Duffie ’s research centers on banking, financial market infrastructure, and fintech payments. And with digitization already transforming the way money moves around the world, Duffie is particularly interested in how digital currency, whether developed privately or issued by governments, promises to revolutionize finance even further. In this episode of If/Then: Business, Leadership, Society , he explores how it could even expand economic opportunity for people left out of the current financial system.

Duffie’s research has tracked countries’ development and rollout of central bank digital currencies (CBDCs). In contrast to cryptocurrencies like Bitcoin, a CBDC is backed by a central bank and is essentially a digital version of a country’s fiat currency. “Virtually all countries are exploring a central bank digital currency for potential use,” he says, and some, like China and the Bahamas, have already implemented them. This shift, Duffie believes, could offer significant benefits over the current financial system by sidestepping the high fees and inefficient timelines associated with moving money, particularly across borders.

Duffie notes that a well-designed CBDC could also address the issue of financial inclusion. “Millions of Americans do not have a bank account. They’re off the grid in terms of payments,” he says. “Maybe this technology would allow many underprivileged Americans to get access to the payment system.”

Despite the political challenges of transitioning away from traditional currencies, Duffie believes digital currencies are on the horizon. The challenge, he says, is striking the right regulatory balance between fostering innovation and mitigating risks. As this episode of If/Then explores, if the U.S. wants to future-proof banking, then a digital dollar could be a solution.

Senior Editor, Stanford GSB

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If/Then is a podcast from Stanford Graduate School of Business that examines research findings that can help us navigate the complex issues we face in business, leadership, and society. Each episode features an interview with a Stanford GSB faculty member.

Full Transcript

Note: Transcripts are generated by machine and lightly edited by humans. They may contain errors.

Kevin Cool: If the U.S. wants to future-proof banking, then a digital dollar could be the solution.

Dawn Sands: You travel to the states, you hear your friends or family members talking about various wallets. These Venmos, these cash apps that they use and transfer money, and you’re like, oh, okay. And then you hear a sand dollar and you’re like, okay, now The Bahamas is catching up.

Kevin Cool: Dawn Sands owns a restaurant in Nassau called NRG Nutrition ready to go in 2020. She was one of the first businesses to start using the country’s new digital currency. That’s a way of paying for transactions electronically, a little like Bitcoin, but backed by the country’s central bank in The Bahamas. It’s called the sand dollar.

Dawn Sands: I did not operate in the cryptocurrency space whatsoever. In the beginning. I was very confused about that. I was more trying to understand the technology behind it. It was a blockchain for me, the sand dollar, it just took a shape and form in my brain. Just the way I hold my credit card. I’ll hold my phone as a wallet and my money is boxed by the Central Bank.

Kevin Cool: Dawn has a good reason to want an alternative to conventional banking.

Dawn Sands: I don’t know if it’s the same where you’re from, but in The Bahamas, banking is a challenge from opening. An account can take you days, and when I say days, you can sit at the bank for literally six to eight hours and then get an account number days from there. My money sits in the bank and my bank is always being hacked. Yeah, my bank account was just hacked the other day. It got hit $4,000 and I’m still waiting to be paid.

Kevin Cool: Her frustrations with banks make her excited about the sand dollars benefits.

Dawn Sands: For example, if you’re going to allow me to receive a sand dollar, I don’t have to pay a fee. Literally, there’s a bank over here that charges $5 for every a hundred I think it is that you deposit. If I can use more than I can deposit less of the bank, I guess that’s what the future is going to look like. If we continue on the path.

Kevin Cool: The United States isn’t getting its own digital currency anytime soon, but its proponents say it will come with many consumer benefits. If it does, it’s already a reality in 11 countries, including China and 130 countries are exploring it. What do these developments mean for the future of banking and finance? Will the U.S. dollar keep its status as the world’s standard if it lags behind on a digital currency? This is if then a podcast from Stanford Graduate School of Business where we examine research findings that can help us navigate the complex issues facing us in business, leadership, and society. I’m Kevin. Cool. Senior editor at the GSB. Today we speak with finance professor Daryl Duffy.

Darrell Duffie: It’s hard to imagine that a hundred years from now, people will be reaching into their pockets and pulling out grubby bits of paper.

Kevin Cool: The focus this episode, if the U.S. wants to future-proof banking than a digital dollar, could be the solution. What do we mean, first of all by a digital currency? How do we differentiate that, say from Bitcoin?

Darrell Duffie: So Bitcoin, because it’s expensive and takes time to use for making payments, it’s not really a very good form of money for making payments, and most importantly, if I promise to pay you for whatever, a cup of coffee or a new car, the money that I send may be worth less than what we agreed by the time it gets to you, because Bitcoin is moving around a lot.

Kevin Cool: It’s a lot of volatility. Yeah.

Darrell Duffie: Price volatility is very high. It’s not that reliable. We, for many years will probably continue to just use our bank accounts for those things, but people are now talking about going to a new world of central bank digital currency or what’s sometimes called a digital dollar. What does that mean? First of all, it means that instead of paying money out of your own bank account at wherever you bank Chase or Wells Fargo, you’ll be paying money out of your account with the Fed, the Federal Reserve Bank. That basically is the central bank for the United States.

Kevin Cool: Let me just clarify. When you say you would be paying from your account, I don’t have an account with the Federal Reserve right now. How would that work?

Darrell Duffie: Well, you don’t have an account at the Federal Reserve now because we don’t have digital dollars right now. The only actors in our economy that have accounts at the Federal Reserve are large financial institutions. Now, we’re not going to knock on the door of the Federal Reserve Bank of San Francisco and ask them for an account. They’re going to delegate that operational side to a commercial bank or to another payment service provider like PayPal or somebody else. So we’ll call Wells Fargo or PayPal and say, would you provide us with some digital dollars that you’ll hold on our behalf at the Fed?

Kevin Cool: What advantage would there be to having a digital dollar rather than just having my bank account at Wells Fargo where I have dollars that I can access digitally?

Darrell Duffie: Well, the question you asked has been the central question under debate for the last five years or so in the us, but there are advantages and disadvantages. Let’s run through a few of them. The Fed doesn’t go bankrupt as opposed to some banks.

Kevin Cool: I certainly hope not.

Darrell Duffie: Well, Silicon Valley Bank went bankrupt, and if you had your account at Silicon Valley Bank rather than at the Fed, you might’ve lost money. Another reason might be that the digital dollar be built on a blockchain like Bitcoin that would allow you to buy things automatically and not fear that you wouldn’t get what you bought. For example, if you were to buy Euros with your digital dollars, doing it on a blockchain means that code software can guarantee that you will receive your Euros if your dollars are taken, as opposed to the current world in which your dollars go somewhere and maybe the Euros that you bought don’t come back to you. Currently, banks are not providing a service that guarantees those payments.

Kevin Cool: What are the impediments? Is it a philosophical policy difference that would be getting in the way here, or what would be the impediments for the United States to do this right away or in the short term?

Darrell Duffie: I think there are two major impediments. Both are partly political. One of them is the concern about privacy. There’s a suspicion by some that if your money is held on account at the Fed rather than your commercial bank, that you will lose privacy over your payments. It’ll be a so-called Big brother situation in which the government could it’s suggested spy on your payments and take advantage of that information to your detriment

Kevin Cool: Because the government has visibility now into essentially all of your transactions, right?

Darrell Duffie: Well, today, they’re not supposed to get access to your transactions unless you’re doing something suspicious, and in that case, your bank is supposed to report you. Last year there were 4 million of those suspicious activity reports or SARS sent to the government by banks. Now, a small fraction of those were actually illegal payments, but the government already has access whenever there’s some potential for a suspicious payment. It’s suggested that by some, not me actually, that if there were a digital dollar, the situation would be much worse because instead of asking banks to send that information, the government supposedly would have direct access to it. There’s a misconception there. First, it’s not necessary that that technology provides information to the government that it couldn’t already get, and secondly, the way that U.S. politics work, the Fed would almost certainly need to guarantee that it couldn’t access all of your payment information or give it to the government, which is a different proposition. So there is a reason to be concerned about privacy, but that’s one of the reasons that Central Bank digital currencies in some countries are going to be delayed until people are confident.

Kevin Cool: So would you say this is inevitable at some point, or not necessarily?

Darrell Duffie: It’s hard to imagine that a hundred years from now people will be reaching into their pockets and pulling out grubby bits of paper.

Kevin Cool: Well, I hope pennies at least are gone by then. Don’t give me to start it on pennies.

Darrell Duffie: I imagine eventually we’ll be using digital dollars and not using paper money to the extent that we use any government currency.

Kevin Cool: Why don’t you just give us sort of a lay of the land in terms of what countries are doing this, how far along are they and so on.

Darrell Duffie: Virtually all countries are exploring a central bank digital currency for potential use. Some of them have gotten to the point where they’ve actually developed or in the course of developing the technology, which is not easy. Some of them have gotten further to the point of piloting a central bank digital currency, and some very few have actually released a central bank digital currency for general use. Like Bahamas is one example, but Bahamas is a small country, and even in Bahamas, a small fraction of money is held in the form of their digital currency, which is called the sand dollar

Kevin Cool: Appropriately.

Darrell Duffie: The largest country that’s well along the way with a central bank digital currency is China. In around 2020, China began piloting a major piloting of its central bank digital currency. It’s only a fraction of 1% of the total amount of money issued by the central bank. Most of it is in paper form. People in China already had access to a really whizzbang electronic payment systems, the two most popular of which are called Alipay and WeChat Pay, which are private sector payment systems put up by two of their largest tech companies. It would be as though Amazon or Google or Facebook or Microsoft were to make available digital payment accounts to everyone and allow you to pay into and out of those accounts. You can imagine that would be quite a powerful option in the United States as well. But in China, those two payment systems account for more than 90% of urban payments.

Kevin Cool: Now, the dollar historically has been essentially the reserve standard for global business. Is the fact that the Chinese government is pursuing this, an effort to encroach on the dollar as that standard.

Darrell Duffie: That’s the central question of a report that I worked on as part of a large committee of experts a few years ago. China’s new central bank digital currency does not threaten the dominance of the U.S. dollar as you described it. It remains and will remain for decades. The go-to currency for international finance, whether it’s central banks holding dollars in their foreign exchange reserves or it’s banks making cross-border payments to each other or invoicing for goods and services or in the foreign exchange market, trading one currency for another, the dollar is by far and away dominant and will remain dominant for decades.

Kevin Cool: For decades. You are listening to if then a podcast from Stanford Graduate School of Business will continue our conversation after the break. The broader experience with cryptocurrency is quite volatile, obviously. I mean, we just saw the whole implosion with FTX and there’ve been other bad actors in this space. What have we learned about cryptocurrency at this point, about its effects on society, its potential advantages in the future? What are we supposed to think about cryptocurrency right now?

Darrell Duffie: It’s very early stages, Kevin. It’s kind of like the Wild West or the beginning of the.com era where the potential is great, but it’s a bit unruly. The U.S. government is lagging relative to other countries and setting out the rules for cryptocurrencies and digital assets more generally. And until those rules are laid down pretty clearly, you can expect a very bumpy ride. In terms of adherence to the law or what is the law, the questions about what is the law that is, you can expect lots of litigation, you can expect some collapses like the ones that we’ve seen, and FTX was only the most spectacular example, but there have been many others. What we should be thinking about is what are the applications of this new technology that could help Americans or people generally, and how can those be safeguarded? How can we avoid losing those opportunities either by failing to regulate or by overregulating?

It’s a balance, but consider the opportunities. Like I mentioned earlier, if you can make payments on a blockchain, you can assure the safety of payments. You can arrange for payments automatically without fear. If the software is reliable, you could potentially provide payments much more broadly in the economy. That issue is called financial inclusion. The United States suffers from millions of Americans who do not have a bank account. They’re off the grid in terms of payments. Maybe this technology would allow many underprivileged Americans to get access to the payment system. Right now, if you’re, let’s say making a remittance, you’re taking a huge loss off the top where the remittance company will hack off whatever, six, 8% to send your money to your family and wherever it is, Philippines, Mexico,

Kevin Cool: Because you don’t have a bank account,

Darrell Duffie: Because you don’t have a bank account or because you’re afraid of your bank, or maybe you don’t want somebody to know that you’re making a payment. So I mentioned there’s a balance. You want the government to be able to stop illegal payments. You want the government to protect you from payment service providers that would take advantage of you. You want the government to be making sure that your money is safe and your payments will go safely to their destination, and at the same time, you don’t want the government to get unduly involved in your private affairs. U.S. government is grappling with these issues right now. There have been a number of acts floated in Congress draft bills that have not yet passed. Europe has moved ahead with its regulatory framework for this. So has the United Kingdom, Hong Kong, Singapore, a number of other countries around the world are moving ahead to provide a path for entrepreneurs to develop these technologies safely and in the knowledge that their capital will not get wiped out by an unexpected change in regulation or the explosion of a piece of infrastructure because it wasn’t properly regulated and the ability to make cross-border payments, which I don’t know if you’ve tried it lately, Kevin, but for me, it’s a nightmare trying to get or make a cross-border payment of one currency for another these days.

A very expensive, very slow, very mistake prone. The technologies we’re discussing could address that and doesn’t need to be a digital dollar in the sense of a government money. It could be some bright entrepreneur that finds a way to do it in the private sector. Now, digital dollar is another approach, and we’ll see whether that turns out to be the winning approach

Kevin Cool: For all the attention they’ve gotten. As an alternative to government backed money, Bitcoin and other cryptocurrencies are not a useful way to buy and sell goods and services, but the blockchain technology behind them has opened the door for a digital currency that’s more versatile and more secure than traditional money. As Daryl Duffy says, the days of pulling out grubby bits of paper to pay for something are numbered when or if the United States introduces a digital dollar, its possibility could bring about the innovation the banking system needs. If that doesn’t happen, the rest of the world may race ahead.

If/Then is produced by Jesse Baker and Eric Nuzum of Magnificent Noise for Stanford Graduate School of Business. Our show is produced by Jim Colgan and Julia Natt. Mixing and sound design by Kristin Mueller. From Stanford GSB: Jenny Luna, Sorel Husbands Denholtz, and Elizabeth Wyleczuk-Stern. If you enjoyed this conversation, we’d appreciate you sharing this with others who might be interested and hope you’ll try some of the other episodes in this series. For more on our professors and their research or to discover more podcasts coming out of Stanford GSB visit our website at gsb.stanford.edu. Find more on our YouTube channel. You can follow us on social media @StanfordGSB. I’m Kevin Cool.

For media inquiries, visit the Newsroom .

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• Cryptocurrency

Digital Currency: The Future Of Your Money

Updated: May 13, 2024, 2:22pm

Digital currency has the potential to completely change how society thinks about money. The rise of Bitcoin (BTC), Ethereum (ETH) and thousands of other cryptocurrencies that exist only in electronic form has led global central banks to research how national digital currencies might work.

What Is Digital Currency?

Digital currency is any currency that’s available exclusively in electronic form. Electronic versions of currency already dominate most countries’ financial systems. What differentiates digital currency from the electronic currency that’s already in Americans’ bank accounts is that digital currency never takes physical form.

You can go to an ATM right now and easily transform the electronic record of your currency holdings into physical dollars. Digital currency, however, never leaves a computer network, and it is exchanged exclusively via digital means.

There are three main varieties of digital currency: cryptocurrency, stablecoins and central bank digital currency, known as CBDCs.

Blockchain technology, which provides the foundation for cryptocurrency, is the most common form of distributed ledger used by digital currencies. According to CoinMarketCap, there are more than 9,000 cryptocurrencies available.

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What Is a Central Bank Digital Currency (CBDC)?

A central bank digital currency is a digital currency that is issued and overseen by a country’s central bank. Think of it like Bitcoin, but if Bitcoin were managed by the Federal Reserve and had the full backing of the U.S. government.

More than 100 countries are exploring CBDCs at one level or another, according to the IMF. But as of 2022, only a handful of countries and territories have CBDC or have concrete plans to issue them.

Some places CBDC is already available include the Central Bank of The Bahamas (Sand Dollar), the Eastern Caribbean Central Bank (DCash), the Central Bank of Nigeria (e-Naira) and the Bank of Jamaica (JamDex), to name just a few.

The Federal Reserve issued a report earlier this year that “a CBDC could fundamentally change the structure of the U.S. financial system.

Currently, the Federal Reserve Bank of Boston and the Massachusetts Institute of Technology’s Digital Currency Initiative are jointly conducting research into a CBDC through Project Hamilton. They describe it as a “multiyear research project to explore the CBDC design space and gain a hands-on understanding of a CBDC’s technical challenges and opportunities.”

Despite the joint venture, the Fed has still not indicated that they are in any hurry to launch a CBDC.

“The Fed will probably not launch a CBDC except under the explicit authority of Congress,” says Jonathan Dharmapalan, CEO and founder of eCurrency. “The law has to support the existence of a digital dollar just like the law supports the existence of a physical dollar.”

How Would a CBDC Work?

While the U.S. CBDC may be far off, Jim Cunha, executive vice president and interim chief administrative officer, shared how a CBDC or a digital dollar might work in the U.S.

CBDC would function similarly to actual cash. “If I gave you CBDC, it’s as if I’m handing you physical money, like a $100 bill. You’d have that money in your account and, it’s yours. I couldn’t take it back,” Cunha said.

This is a key difference from other electronic payments, such as ACH transfers or PayPal.

“If I send you money through PayPal, it’s just a promise that money is coming. Your balance may show the funds, but money hasn’t actually moved between banks yet,” according to Cunha.

Because of that, the transactions are not irrevocable, and the other party can reverse them. There are 60 days when an ACH transfer can be potentially unwound. With transfers through CBDC, the funds would be sent close to instantly and the other party couldn’t cancel after.

Another key advantage of CBDC is that it could be deemed legal tender. That means all economic actors must accept it for any legal purposes. You can pay your taxes with it, and anyone lends you money is legally required to accept it for repayment.

This contrasts with other digital currencies, which are not legal tender in the U.S. Only certain vendors accept crypto directly, so people may need to convert their cryptocurrency into U.S. dollars before making most transactions.

When you use crypto as a form of payment, you also create a taxable event , which means you may owe capital gains taxes each time you purchase something with Bitcoin or Ethereum’s Ether token. This is in addition to any sales taxes. With CBDC, you would only owe any applicable sales tax, just like using a physical currency.

How Have Digital Currencies Worked Around the World?

Despite the potential benefits of a U.S. CBDC, it remains a concept for now. Around the world, other countries are a little further along with digital currencies.

According to the Atlantic Council’s GeoEconomics Center’s Central Bank Digital Currency (CBDC) Tracker, 10 countries have fully launched a digital currency, and China is on course to expand from its pilot CBDC in 2023.

China’s digital yuan, one of the largest CBDC programs, launched its pilot project in 2014.

“They are testing a pilot in five cities. They gave out millions in currency through lotteries just to prove it works,” according to Cunha. People who win the lottery receive free CBDC, which they can spend at local shops that accept it.

While it’s not at a national scale yet, once China has the platform ready, it will expand through banks and mobile providers like Alipay.

The central banks of China and the United Arab Emirates are also working on a project to use blockchain and CBDC for regional payments between nations. If these projects are a success, they could give more motivation to other nations to create their own CBDC.

Because of these trends, Lilya Tessler, head of Sidley’s FinTech and Blockchain group, is optimistic about the future use of digital currencies. “We certainly will see mass adoption of digital currencies, but it is difficult to predict how it will look. CBDC may replace the paper version of the U.S. dollar. At the same time, society may focus on mainstream adoption of a decentralized cryptocurrency.”

How Would Digital Currency Affect You?

If the U.S. adopts a digital currency, it would work as an alternative to cash but would also have the built-in advantage of quick money transfer since it’s electronic.

Cunha has a few ideas on what this would look like for consumers. “Our presumption is that it will be free or near free, like cash. Other private sector players may innovate on top of it and possibly additional fees, but that has to be fleshed out more,” he says.

Even though a digital currency would be electronic, it still needs to be as accessible as cash.

“Anyone should be able to use it, not just those with the latest smartphones,” Cunha said, suggesting chip-based cards, point-of-sale systems and web accounts as alternative ways to access the CBDC. He also believes a way to handle transactions offline will need to be developed, so two people can exchange CBDC even if they aren’t on a cell or WiFi network.

There’s a lot to be done and a lot of industry input needed, but it could be well worth the investment.

“While no decision has been made to move past this research, I truly believe CBDC should be fully investigated and holds great potential,” he said. “Just think of the internet and how far it’s come since the early days. With CBDC, the possibilities are endless.”

Benefits of Digital Currency

• Faster payments. Using digital currency, you can complete payments much faster than current means, like ACH or wire transfers, which can take days for financial institutions to confirm a transaction.
• Cheaper international transfers. International currency transactions are very expensive. Individuals are charged high fees to move funds from one country to another, especially when it involves currency conversions. Digital assets could disrupt this market by making it faster and less costly.
• 24/7 access. Existing money transfers often take more time during weekends and outside normal business hours because banks are closed and can’t confirm transactions. With digital currency, transactions work at the same speed 24 hours a day, seven days a week.
• Support for the unbanked and underbanked. More than 7 million American households do not have a bank account, according to the FDIC in a 2019 survey. They end up paying costly fees to cash their paychecks and send payments to others through money orders or remittances. If the country launched a CBDC, unbanked individuals could access their money and pay their bills without extra charges.
• More efficient government payments. If the government developed a CBDC, it could send payments like tax refunds, child benefits and food stamps to people instantly, rather than trying to mail them a check or figure out prepaid debit cards.

Disadvantages of Digital Currency

• Too many options. The current popularity of cryptocurrency is a downside. “There are so many digital currencies being created across different blockchains that all have their own limitations. It will take time to determine which digital currencies may be appropriate for certain use cases, including whether some are designed to scale for mass adoption,” Tessler says.
• Steep learning curve. Digital currencies require work on the part of the user to learn how to perform fundamental tasks, like how to open a digital wallet and properly store digital assets securely. The system needs to get simpler for digital currencies to be more widely adopted.
• Expensive transaction. Cryptocurrencies use blockchain, where computers must solve complex equations to verify and record transactions. This takes considerable electricity and gets more expensive as there are more transactions. However, this would probably not exist for CBDC since the central bank would likely control it and complex consensus processes are not needed.
• Price volatility. Cryptocurrency prices and values can change suddenly. Cunha believes this is why businesses are reluctant to use it as a medium of exchange. “As a business, do I want to accept something volatile? What if I hold a Bitcoin for a week and it loses 20% of its value?” With CBDC, though, the value is much stabler, like paper currency, and cannot fluctuate like this.
• Slow progress. A U.S. CBDC is still hypothetical, and if the government decides to create one, there will be costs associated with its development.

How to Invest in CBDC?

CBDCs are no different than an issuing nation’s existing monetary supply. This means the only way to invest in a CBDC is to hold the currency in your account. In other words, investing in CBDCs is just like holding a nation’s physical cash in your hand today.

However, right now, foreign nationals can’t hold the CBDCs of any other government in their digital wallets. In other words, a U.S. citizen can’t currently access Bahaman “sand dollars.”

You need a verified username and bank account to hold a CBDC from any nation today, you need a verified username and bank account. This means citizens of different countries can’t have a foreign nation’s CBDC distributed to them. Most experts believe, though, that this will change as more CBDCs are implemented worldwide.

Digital Currency FAQs

What’s the difference between cryptocurrency and digital currency.

Cryptocurrency is a form of decentralized digital currency. The reason it’s referred to as a “crypto” currency is that it requires cryptography rather than a central authority to manage its ledgers and balances since the currency is decentralized. Today, the most common form of ledger system for cryptocurrencies to use is blockchain technology.

Digital currency, on the other hand, is any form of currency that exists solely in digital form.

How many types of digital currency are there?

There are three types of digital currency: cryptocurrency, stablecoins and CBDCs.

Cryptocurrency is a form of decentralized digital currency that isn’t pegged to any fiat currency. It uses cryptography to manage its ledger systems, and the market determines its value. Bitcoin was the first cryptocurrency.

Stablecoins are similar to cryptocurrencies; some experts even consider them a subset of cryptocurrency. They have no central authority to keep track of their ledgers. However, the major difference between stablecoins and cryptocurrencies is that stablecoins are usually pegged to a fiat currency.

On the other hand, CBDCs are a form of digital currency issued by a nation’s central bank. This makes them a form of digital currency controlled by a central authority. Governments issue them, and the particular nation’s monetary policy sets their value.

How do you buy digital currency?

You can buy most digital currencies (cryptocurrencies and stablecoins) on the world’s existing crypto exchanges. However, not all exchanges offer every cryptocurrency. So you’ll want to research the exchange to ensure it offers the currency you’re interested in.

As far as CBDCs go, those are currently only available to residents of the countries where the specific CBDC is offered. In other words, only citizens of the Bahamas can access that nation’s sand dollar, and only Chinese citizens can access the digital yuan.

Cryptocurrencies are highly volatile investments. It’s recommended that investors speak with a financial professional before committing their money to these or any other asset classes.

How to create digital currency?

CBDCs can only be authorized and created by the world’s governments. A central bank must issue them with the full backing of that government’s treasury. Private individuals and corporations cannot create CBDCs.

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David Rodeck specializes in making insurance, investing, and financial planning understandable for readers. He has written for publications like AARP and Forbes Advisor, as well as major corporations like Fidelity and Prudential. Before writing full time, David was a financial advisor. That added a layer of expertise to his work that other writers cannot match.

Essay on Digital Currency

Students are often asked to write an essay on Digital Currency in their schools and colleges. And if you’re also looking for the same, we have created 100-word, 250-word, and 500-word essays on the topic.

Let’s take a look…

100 Words Essay on Digital Currency

What is digital currency.

Digital currency is money that exists only in the digital world. It’s not physical like coins or notes. Instead, it’s stored on computers. It’s a type of currency that you can use to buy things online. Bitcoin is a famous example of digital currency.

How Does Digital Currency Work?

Digital currency works through technology called blockchain. This is a type of computer system that keeps track of all digital money transactions. It’s like a digital ledger. This system ensures that the digital currency is safe and can’t be copied or faked.

Types of Digital Currency

There are many types of digital currencies. Bitcoin is the most well-known. Others include Ethereum, Ripple, and Litecoin. Each one works in slightly different ways, but they all use blockchain technology.

Advantages of Digital Currency

Digital currency has many advantages. For example, it can be sent anywhere in the world quickly and cheaply. Also, it’s secure because of the blockchain technology. It’s also easy to carry around because it’s not physical.

Disadvantages of Digital Currency

There are also disadvantages to digital currency. For example, its value can change quickly, which can be risky. Also, if you lose access to your digital wallet, you could lose all your digital money. Plus, not all places accept digital currency.

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250 Words Essay on Digital Currency

Digital currency is money that is available only in digital form. It is not like the physical money that we can touch or see, such as coins and notes. It exists only on computers and the internet. Examples of digital currencies are Bitcoin, Ethereum, and Ripple.

Digital currency works using technology called blockchain. Think of blockchain as a digital notebook. This notebook keeps a record of all transactions made with digital currencies. This record is public and can’t be changed, making digital currency safe and secure.

The Use of Digital Currency

Digital currency can be used to buy goods and services online. Some online stores and even some physical stores accept digital currencies like Bitcoin. People also use digital currencies for investment. They buy these currencies when their prices are low and sell them when their prices go up.

The Future of Digital Currency

Digital currency is becoming more popular. More people are learning about it and starting to use it. Some experts believe that digital currencies could replace traditional money in the future. This means we might not use coins and notes anymore and only use digital money.

In conclusion, digital currency is a new form of money that exists only on the internet. It is safe, secure, and easy to use. As more people start using it, it could change the way we use money in the future.

500 Words Essay on Digital Currency

Digital currency is like money but in electronic form. It’s not something you can touch or feel, but you can use it to buy things online. It’s like the money you see in your bank account when you check it on your phone or computer.

There are many types of digital currencies. Some of them are called cryptocurrencies, like Bitcoin and Ethereum. These are special because they use a technology called blockchain to keep them safe and secure. Other types of digital currencies are created by governments, and these are often called Central Bank Digital Currencies (CBDCs).

Why Do People Use Digital Currency?

People use digital currencies for many reasons. Some like it because it’s quick and easy to send money around the world. Others like it because it can be more secure than traditional money. And some people like it because they hope the value of the digital currency will go up and they can make money.

Are There Risks with Digital Currency?

Yes, there are risks with using digital currency. One risk is that the value of the digital currency can go up and down a lot. This means if you own some, you might lose money. Another risk is that if you lose access to your digital wallet, you could lose all your digital currency. Also, because it’s still pretty new, the rules around using digital currency can change quickly.

That’s it! I hope the essay helped you.

Apart from these, you can look at all the essays by clicking here .

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Digital Currency

The emerging technology of digital currency may affect and change how we see, use, and save money in the years to come.

Social Studies, Economics

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When you think of “currency,” you are probably thinking of the cash you hand over at a store, or the credit cards or money transfers that can be used in place of physical money. In general, currency is a system of money backed by a government. Typically made up of coins and paper notes, currency is a medium of exchange, meaning that it is the basis for various kinds of trade and transactions. As technology has grown more sophisticated, digital currencies (which have no physical form) have grown as more financial transactions have gone online. Digital currency is simply a payment method that does not exist outside of its electronic form. Within the past decade, a new particularly popular kind of digital currency has emerged: cryptocurrency . Although this new system is unlikely to replace the more traditional forms of currency any time soon, it has made a significant impact in less than 10 years. What is Cryptocurrency? The prefix “crypto” originally comes from the Greek word meaning “hidden.” This does not mean that cryptocurrency is secret, but rather that this “hidden” money is digital, and is kept secure with digital-code encryption. These digital currencies are the heart of systems that allow secure, direct payment for online transactions. “Crypto-” actually refers to the cryptographic data encryption that keeps the transactions protected from hackers or other digital eyes. It also makes cryptocurrency difficult to counterfeit. Cryptocurrency has gained popularity because it offers a straightforward way to transfer funds entirely online, without involving third parties like banks or credit card companies (and paying the fees they often charge for processing transactions). Instead of physical coins or paper notes, cryptocurrencies have digital “tokens,” or different digital denominations (think of one- or five-dollar bill, etc.). For example, one bitcoin is equivalent to 100,000,000 satoshis, the smallest denomination of a bitcoin and named for bitcoin ’s supposed inventor, Satoshi Nakamoto. This enables transactions smaller than a full coin. The transfer of funds involves “public” and “private” keys, which are lines of code that need to match on both sides, so the transaction can be completed. Cryptocurrency is saved in the user’s “wallet,” or a URL or internet account address that can only be accessed by the owner. The wallet has a public key, and the private key is used to sign a transaction, much like you would sign a check or a credit card slip. Would-be cryptocurrency users can use particular websites to exchange different currency types (like euros or dollars) for cryptocurrency tokens. The system that supports cryptocurrencies online is called blockchain , which is essentially a digital ledger that tracks transactions across the internet. There is a blockchain for each kind of digital cryptocurrency , which records all transactions using that particular cryptocurrency . What helps make cryptocurrency unique is that there is no central bank or processing center. Instead, the blockchain is made up of “distributed ledger” technology, which is a database shared across a network of sites and servers. By involving a collection of different networks throughout a transfer, it creates a traceable trail, and reduces the chances that the transactions can be disrupted by a cyberattack or data breach by adding “witnesses” along the way. Different types of cryptocurrency (sometimes also referred to as “altcoin”) include bitcoin , Litecoin, Ethereum, Zcash, Dash, Ripple, Monero, NEO, Cardano, and EOS. Because of the high-tech nature of cryptocurrency , new forms are emerging all the time. The Bitcoin Revolution The most popular form of cryptocurrency is bitcoin , created by a developer (or group of developers) under the pseudonym “Satoshi Nakamoto” in 2009. Bitcoin ’s origins are shrouded in mystery—no one has been able to confirm the identity (or identities) of programmer Satoshi Nakamoto. Like most digital currencies, bitcoins are not issued or regulated by a government. Instead of a central point of creation (like the United States Mint), bitcoins are created by “mining,” or allowing individuals to contribute their own computers to the transaction network in exchange for bitcoins and access to bitcoin transactions. The supply of bitcoins available is fixed by its developers at 21 million, with the value and the mining rate adjusted with that cap in mind. Bitcoin is by far the most popular cryptocurrency in circulation, although it is not considered legal tender (issued or backed by a government). Currency of the Future? The benefits and drawbacks of digital and cryptocurrencies (particularly bitcoin ) have become a hot topic of debate. The security and anonymity of these digital-only currencies and the blockchain make it an appealing option for users who want to make discreet transactions, or avoid the fees and bureaucracy of traditional banks and financial systems. Still, some experts believe that the popularity of these cryptocurrencies is more of a trend than a sure bet for the future. There are also legal and security issues at play here, with anonymous cryptocurrency transactions potentially being used to cover up criminal activity. However, it is likely that the unregulated, Wild West days of cryptocurrency are numbered, with governments looking for ways to regulate and monitor cryptocurrency transactions much like standard financial transactions.

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RBI’s Digital Currency and its Significance

• Feb 15, 2022, 12:20

What is a Digital Currency?

The term ‘digital currency’ refers to money exclusively available in digital or electronic form. It is also known as cyber cash, digital money, electronic money, or electronic currency. Electronic wallets or computers connected to the internet or specified networks conduct digital currency transactions. Typically, digital currencies do not require intermediaries and it is frequently the most cost-effective way to trade currencies. Not all digital currencies are cryptocurrencies, and not all cryptocurrencies are digital currencies. Digital currencies have the ability to transfer value seamlessly and reduce transaction costs. India’s official digital currency is in the works and would be launched by 2022–23, according to the Reserve Bank of India (RBI).

Central Bank Digital Currency

A Central Bank Digital Currency (CBDC) is a digital form of a legal tender issued by the central bank. It is equivalent to fiat cash and may be exchanged one-to-one but in a different form. A sovereign currency in electronic form will appear on the central bank’s balance sheet as a liability (currency in circulation). It should be possible to exchange CBDCs for cash. Central banks worldwide are promoting digital currencies for various reasons including to popularise usage of electronic money and thwart the emergence of private digital assets such as cryptocurrencies. According to a poll by the Bank for International Settlements (BIS) in 2021, 86% of central banks were actively researching possibilities for CBDCs, 60% were experimenting with the technology and 14% were conducting trial projects. More than 91 countries, representing over 90% of the world’s GDP, have their own centralised digital currency in works. India is in the development stage of its digital currency.

India’s own official digital currency is expected to emerge in early 2023 and will be similar to any of the already available private company-operated electronic wallets, with the exception that it will be a sovereign-backed facility. Ms. Nirmala Sitharaman, Minister of Finance and Corporate Affairs, mentioned in her 2022–23 budget speech that a central bank-backed 'digital rupee' would be launched soon. The RBI has made public its proposal to adopt digital currency in stages. Mr. T. Rabi Sankar, Deputy Governor of RBI, stated in December that the wholesale component of the CBDC had made significant progress, while the retail component would take longer. The digital rupee will be based on blockchain technology, which will reduce the cost of currency maintenance and allow the government to manufacture fewer notes. The currency will be digital; its lifespan is extended because digital forms cannot be destroyed or lost.

Difference between a CBDC and Digital Asset

Significance of Digital Currency

• A safer form of money: CBDCs, such as paper currency, are direct liabilities of the central bank, making them a safer form of digital money. This can be compared to a situation in which every person has a checking account with the central bank.
• End to paper cash: The central bank will be the custodian of everyone’s cash and the clearer of all transactions, and there will be no need for conversion of paper money into digital money because a CBDC unit is a direct central bank liability that is precisely equivalent to paper money rather than merely convertible into it, rendering paper cash obsolete. People will no longer require cash outlets and will have fewer options for depositing cash and other valuables.
• Easier policy implementation and regulation: In a CBDC environment, all transactions can theoretically be monitored using data analytics and AI to quickly identify banks that are failing or participating in questionable transactions. It becomes much easier for authorities to identify the parties to a transaction in a CBDC world where digital bank codes are visible to the clearing institution, which largely simplifies the detection of criminal activity and eliminates black markets that deal primarily in physical money.
• Increased diversity: CBDC transactions do not require a bank account, which is crucial in developing countries where a third of the population lacks access to traditional finance but has mobile internet access. With an Aadhar number and a smartphone, an unbanked Indian customer can easily transact using a mobile app. This means that governments in the industrialised world will quickly incorporate those who had previously been excluded from the financial system.
• Cost of currency management: Based on the market estimate, the cost of each Rs 100 (US$ 1.33) note in its four-year life cycle is 15–17% on each tender of Rs 15–17 (US$ 0.2–0.23). The cycle comprises a series of new notes being printed, and soiled notes being returned to the RBI via commercial banks. The cost reductions from a digital currency might be significant, given that bigger denomination notes are being phased out and people start switching to digital rupee instead of paper-based currency.
• Overcoming international differences: CBDCs could help payment systems become more real-time and cost-effectively globalised. An Indian importer can pay an American exporter in digital dollars in real-time without an intermediary. This transaction would be complete, just like handing over cash in dollars, and it would not even require the US Federal Reserve system to be open for settlement. Currency settlements would no longer be affected by time zone differences.

A Step Towards a Cashless Economy

Faced with diminishing paper currency usage, central banks try to popularise a more acceptable electronic form of currency. They are attempting to accommodate the public’s need for digital currencies, as evidenced by the growing use of private virtual currencies, while also avoiding the more harmful repercussions of such private currencies. CBDCs can offer users advantages such as liquidity, scalability, acceptance, transaction convenience, anonymity, and speedier settlement. With the government’s support infrastructure, CBDC adoption will improve and make it easier for individuals to utilise, much as UPI made it easier to use digital currency.

In the real world, the digital rupee can be used for programmable payments for subsidies and by financial institutions for faster lending and payments. There can be a pragmatic shift to a cashless economy in the near future. This might encourage the government's push for cashless payments and positively impact the banking sector . As the digital rupee grows, it may improve things such as cross-border remittances. An environment for interoperability may be built, and lead to a cashless economy.

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What Is a Central Bank Digital Currency (CBDC)?

A central bank digital currency (CBDC) is a form of digital currency issued by a country's central bank. It is similar to cryptocurrencies, except that its value is fixed by the central bank and is equivalent to the country's fiat currency.

Many countries are developing CBDCs, and some have even implemented them. Because so many countries are researching ways to transition to digital currencies, it's important to understand what CBDCs are and what they mean for society.

Key Takeaways

• A central bank digital currency (CBDC) is the digital form of a country's fiat currency .
• A nation's monetary authority, or central bank, issues a CBDC, which promotes financial inclusion and simplifies the implementation of monetary and fiscal policies.
• Many countries are exploring how CBDCs may affect their economies, financial networks, and stability.
• It's important for people and nations to understand central bank digital currencies because some of the world's economies are moving toward their use.

Understanding Central Bank Digital Currencies (CBDCs)

Fiat money is a government-issued currency that has no physical commodity like gold or silver backing it up. It is considered a form of legal tender that can be exchanged for goods and services.

Traditionally, fiat money has been banknotes and coins, but technology has allowed governments and financial institutions to supplement physical fiat money with a credit-based currency model that records balances and transactions digitally.

Physical currency is still widely exchanged and accepted. However, some developed countries have experienced a drop in its use, and that trend accelerated during the pandemic.

The introduction and evolution of cryptocurrency and blockchain technology have spurred additional interest in cashless societies and digital currencies.

Governments and central banks worldwide are exploring the possibility of using government-backed digital currencies. When and if they are implemented, these currencies would have the full faith and backing of the government that issues them, just as fiat money does.

Purposes of CBDCs

In the U.S. and many other countries, many individuals don't have access to financial services. In the U.S. alone, 6% of adults had no bank account in 2023. In many other countries, the numbers are much higher. With that in mind, the main purposes of CBDCs are:

• To provide businesses and consumers conducting financial transactions with privacy, transferability, convenience, accessibility, and financial security .
• Decrease the cost of maintenance that a complex financial system requires, reduce cross-border transaction costs, and provide those who currently use alternative money-transfer methods with lower-cost options.
• Reduce the risks of using digital currencies, or cryptocurrencies, in their current form. Cryptocurrencies are highly volatile, with their value constantly fluctuating. This volatility could cause severe financial stress in many households and affect the overall stability of an economy. CBDCs, backed by a government and controlled by a central bank, would give households, consumers, and businesses a secure means of exchanging digital currency.

A CBDC also provides a country's central bank with the means to implement monetary policies to ensure stability, control growth, and influence inflation.

Types of CBDCs

There are two types of CBDCs: wholesale and retail. Financial institutions are the primary users of wholesale CBDCs, whereas consumers and businesses use retail CBDCs.

Wholesale CBDCs

Wholesale CBDCs function similarly to holding reserves in a central bank. The central bank grants an institution an account in which to deposit funds or to use to settle interbank transfers . Central banks can then use monetary policy tools, such as reserve requirements or interest on reserve balances, to set interest rates and influence lending.

Retail CBDCs

Retail CBDCs are government-backed digital currencies used by consumers and businesses. Retail CBDCs eliminate intermediary risk—the risk that private digital currency issuers might become bankrupt and lose customers' assets.

There are two types of retail CBDCs. They differ in how individual users access and use their currency:

• Token-based retail CBDCs are accessible with private keys , public keys , or both. This method of validation allows users to execute transactions anonymously.
• Account-based retail CBDCs require digital identification to access an account.

It is possible to develop and implement the two types of CBDCs and have them function in the same economy.

Issues Concerning CBDCs

The Federal Reserve has identified issues addressed by CBDCs, as well as matters that must be addressed before a CBDC can be designed and implemented.

Free from credit and liquidity risk

Lower cross-border payment costs

Support the international role of the dollar

Aim for financial inclusion

Expand access to the general public

Financial structure changes

Financial system stability

Monetary policy influence

Privacy and protection

Cybersecurity

Issues Addressed by CBDCs

• Eliminate the third-party risk of events like bank failures or bank runs . Any residual risk that remains in the system rests with the central bank.
• Can lower high cross-border transaction costs by reducing the complex distribution systems and increasing jurisdictional cooperation between governments.
• Could support and protect U.S. dollar dominance; the U.S. dollar is still the most-used currency in the world.
• Remove the cost of implementing a financial structure within a country to bring financial access to the unbanked population.
• Can establish a direct connection between consumers and central banks, thus eliminating the need for expensive infrastructure.

Issues Created by CBDCs

• If the U.S. financial structure drastically changes, it's unknown how it would affect household expenses, investments, banking reserves, interest rates , the financial services sector, or the economy.
• A switch to a CBDC could have an unknown effect on a financial system's stability. For example, there may not be enough central bank liquidity to facilitate withdrawals during a financial crisis.
• Central banks implement monetary policy to influence inflation, interest rates, lending, and spending, which in turn affects employment rates. Central banks must ensure that they have the tools needed to impact the economy positively.
• Privacy is one of the most significant drivers behind cryptocurrency. CBDCs would require an appropriate amount of intrusion by authorities to monitor for financial crimes; monitoring is also important because it supports efforts to combat money laundering and the financing of terrorism.
• Cryptocurrencies have been the target of hackers and thieves. A central bank-issued digital currency would likely attract the same crowd of thieves. Therefore, efforts to prevent system penetration and theft of assets and information would need to be robust.

The cryptocurrency ecosystem provides a glimpse of an alternative currency system in which cumbersome regulations don't dictate the terms of each transaction. Such transactions are hard to duplicate or counterfeit and are secured by consensus mechanisms that prevent tampering.

Central bank digital currencies are designed to be similar to cryptocurrencies , but they may not require blockchain technology or consensus mechanisms.

Additionally, cryptocurrencies are unregulated and decentralized. Their value is dictated by investor sentiments, usage, and user interest. They are volatile assets more suited for speculation, which makes them unlikely candidates for use in a financial system that requires stability. CBDCs mirror the value of fiat currency and are designed for stability and safety.

CBDCs in Use and in Development

Central banks in many countries have launched pilot programs and research projects to determine the viability and usability of a CBDC in their economies.

As of March 2024, three countries had a functioning CBDC: the Bahamas, Jamaica, and Nigeria. The Eastern Caribbean Currency Union halted its CBDC for technical reasons and started a new pilot program.

There are 36 CBDC pilots in operation and 8 of the G20 have programs in development. The BRICS countries—Brazil, Russia, India, China, and South Africa—are exploring a CBDC.

One example of a failed CBDC attempt is the United Kingdom's Britcoin , which existed between 2011 and 2019.

According to the Federal Reserve, the U.S. is one of those countries that is exploring whether a CBDC "could improve on an already safe and efficient U.S. domestic payments system."

What Is the Purpose of a CBDC?

CBDCs are government-backed digital currencies that use blockchain or distributed ledger technology. Their purpose is to expand accessibility to financial services and lower the maintenance costs of current monetary systems.

Is the U.S. Going to Digital Currency?

Not yet. The Federal Reserve and its branches are researching CBDCs and ways to implement them in the U.S. financial system. President Joe Biden ordered the development of a national strategy on digital currencies.

Has Any Country Launched a CBDC?

Yes, Jamaica, Nigeria, and The Bahamas have launched CBDCs.

Is CBDC a Threat?

CBDCs should be implemented to enhance existing financial networks and fiat currencies, not replace them. If one was launched to replace a fiat currency, it might cause problems in a system—but no country has tried it yet, so the effects it might have are unknown or theoretical at best.

Many countries are researching or developing central bank digital currencies, and three have implemented them. A CBDC's main purpose is to provide businesses and consumers with privacy, transferability, convenience, accessibility, and financial security.

Many individuals throughout the world have no access to bank accounts, so a CBDC would give them a way to be paid, hold their money, and pay bills. CBDCs could also decrease the maintenance a complex financial system requires, reduce cross-border transaction costs, and give people who use alternative money-transfer methods lower-cost options.

The comments, opinions, and analyses expressed on Investopedia are for informational purposes online. Read our warranty and liability disclaimer  for more info.

PricewaterhouseCoopers. " There Are Pros and Cons to a Cashless World. Here Are Three Steps To Make It Work ."

Board of Governors of the Federal Reserve System. " Report on the Economic Well-Being of U.S. Households in 2023 – May 2024 ."

The White House. " Technical Possibilities for a U.S. Central Bank Digital Currency ."

Bank for International Settlements. " Annual Economic Report June 2021 ," Pages 70-73.

Federal Reserve System. " Money and Payments: The U.S. Dollar in the Age of Digital Transformation ," Page 14-20.

International Monetary Fund. " Currency Composition of Official Foreign Exchange ."

Federal Reserve Bank of Boston. " Project Hamilton Phase 1 Executive Summary ."

Atlantic Council. " Central Bank Digital Currency Tracker ."

Yahoo!Finance. " 'Britcoin' on Hold as Bank of England Considers Blockchain Tech .

Board of Governors of the Federal Reserve System. " Central Bank Digital Currency (CBDC) ."

The White House. " FACT SHEET: President Biden to Sign Executive Order on Ensuring Responsible Development of Digital Assets ."

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Make Your Note

Central Bank Digital Currency

• 24 Aug 2022
• 11 min read
• GS Paper - 2
• Government Policies & Interventions
• GS Paper - 3
• Growth & Development
• IT & Computers

For Prelims: Economic Development, Cryptocurrency, Blockchain, Central Bank Digital Currency (CBDC), Reserve Bank of India (RBI)

For Mains: Central Bank Digital Currency (CBDC) - Opportunities and Risks Associated

Why in News?

According to recent reports, the Reserve Bank of India’s (RBI) digital rupee — the Central Bank Digital Currency (CBDC) — may be introduced in phases beginning with wholesale businesses in the current financial year.

• RBI had proposed amendments to the Reserve Bank of India Act, 1934 , which would enable it to launch a CBDC.

What is Central Bank Digital Currency (CBDC)?

• CBDCs are a digital form of a paper currency and unlike cryptocurrencies that operate in a regulatory vacuum, these are legal tenders issued and backed by a central bank.
• A fiat currency is a national currency that is not pegged to the price of a commodity such as gold or silver.
• The digital fiat currency or CBDC can be transacted using wallets backed by blockchain.
• Though the concept of CBDCs was directly inspired by Bitcoin , it is different from decentralised virtual currencies and crypto assets, which are not issued by the state and lack the ‘legal tender’ status.
• 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.
• It will also wean people away from cryptocurrencies as a means for money transfer.
• Bahamas has been the first economy to launch its nationwide CBDC — Sand Dollar.
• Nigeria is another country to have rolled out eNaira in 2020.
• China became the world's first major economy to pilot a digital currency e-CNY in April 2020.
• Korea, Sweden, Jamaica, and Ukraine are some of the countries to have begun testing its digital currency and many more may soon follow.

What are the Benefits & Challenges of CBDC?

• CBDC can gradually bring a cultural shift towards virtual currency by reducing currency handling costs.
• The convenience and security of digital forms like cryptocurrencies
• The regulated, reserved-backed money circulation of the traditional banking system.
• CBDC can provide an easy means to speed up a reliable sovereign backed domestic payment and settlement system partly replacing paper currency.
• It could also be used fo r cross-border payments , it could eliminate the need for an expensive network of correspondent banks to settle cross-border payments.
• The increased use of CBDC could be explored for many other financial activities to push the informal economy into the formal zone to ensure better tax and regulatory compliance.
• It can also pave the way for furthering financial inclusion.
• This has serious implications given that digital currencies will not offer users the level of privacy and anonymity offered by transacting in cash.
• Compromise of credentials is another major issue.
• If sufficiently large and broad-based, the shift to CBDC can impinge upon the bank’s ability to plough back funds into credit intermediation.
• If e-cash becomes popular and the Reserve Bank of India (RBI) places no limit on the amount that can be stored in mobile wallets, weaker banks may struggle to retain low-cost deposits.
• Faster obsolescence of technology could pose a threat to the CBDC ecosystem calling for higher costs of upgradation.
• Operational risks of intermediaries as the staff will have to be retrained and groomed to work in the CBDC environment.
• Elevated cyber security risks, vulnerability testing and the costs of protecting the firewalls.
• Operational burden and costs for the central bank in managing CBDC.

Way Forward

• Then it can steer away from serving as a store of value to avoid the risks of disintermediation and its major monetary policy implications.
• Thus, it is important to employ the right technology that will back the issue of CBDCs.
• The RBI will have to map the technology landscape thoroughly and proceed cautiously with picking the correct technology for introducing CBDCs.
• This would require close interaction between the banking and data protection regulators.

UPSC Civil Services Examination, Previous Year Questions (PYQs)

Q. With reference to “Blockchain Technology”, consider the following statements: (2020)

• It is a public ledger that everyone can inspect, but which no single user controls.
• The structure and design of blockchain is such that all the data in it are about cryptocurrency only.
• Applications that depend on basic features of blockchain can be developed without anybody’s permission.

Which of the statements given above is/are correct?

(a) 1 only (b) 1 and 2 only (c) 2 only (d) 1 and 3 only

Explanation:

• A blockchain is a form of public ledger, which is a series (or chain) of blocks on which transaction details are recorded and stored on a public database after suitable authentication and verification by the designated network participants. A public ledger can be viewed but cannot be controlled by any single user. Hence, statement 1 is correct.
• The blockchain is not only about the cryptocurrency but it turns out that blockchain is actually a pretty reliable way of storing data about other types of transactions, as well.
• In fact, blockchain technology can be used in property exchanges, bank transactions, healthcare, smart contracts, supply chain, and even in voting for a candidate. Hence, statement 2 is not correct.
• Although cryptocurrency is regulated and needs approval of the central authorities, blockchain technology is not only about cryptocurrency. It can have various uses, and applications based on basic features of the technology can be developed without anybody’ approval. Hence, statement 3 is correct.
• Therefore, option (d) is the correct answer.

Q. Consider the following pairs: (2018)

Which of the pairs given above is/are correctly matched?

(a) 1 and 3 only (b) 2 only (c) 2 and 3 only  (d) 1, 2 and 3

• The Belle II Experiment is a particle physics experiment designed to study the properties of B mesons (heavy particles containing a bottom quark). Belle II is the successor to the Belle experiment, and is currently being commissioned at the SuperKEKB accelerator complex at KEK in Tsukuba, Ibaraki Prefecture, Japan. Hence, pair 1 is not correctly matched.
• CRISPR-Cas9 is related to genetic engineering. It is a unique technology that enables geneticists and medical researchers to edit parts of the genome by removing, adding or altering sections of the DNA sequence. Hence, pair 3 is not correctly matched.
• In simple terms, blockchain is a time-stamped series of immutable record of data that is managed by cluster of computers not owned by any single entity.
• Each of these blocks of data (i.e. block) are secured and bound to each other using cryptographic principles (i.e. chain). Blockchain technology allows market participants to keep track of digital currency transactions without central record keeping. Hence, pair 2 is correctly matched.
• Therefore, option (b) is the correct answer.

Q. What is Cryptocurrency? How does it affect global society? Has it been affecting Indian society also? (2021)

Project PHaEDRA - Florence M. Campbell - RH Plates PTM - Schilt #68 (phaedra1268)

About the project.

At Harvard College Observatory (now the Center for Astrophysics | Harvard & Smithsonian), Women Astronomical Computers studied glass plate photographs of the night sky. Here they cataloged stars; identifying variables, interpreting stellar spectra, counting galaxies, and measuring the vast distances in space. Several of them made game-changing discoveries in astronomy and astrophysics. In these books, follow the work of Florence M. Campbell who helped Annie Jump Cannon catalog variable stars. Interested in the history of science? Love astronomy? Help us transcribe the work of the Harvard Observatory's women computers and early astronomers and see which stars shine the brightest. PLEASE NOTE: Project PHaEDRA notebooks are quite unique, and we have a special set of instructions for them. Please take a moment to familiarize yourself with these guidelines.

Recently, research material originally produced during the mid-to-late 19th and early 20th centuries by researchers at the Harvard College Observatory was re-discovered within the Harvard Library Depository. Written by the Women Astronomical Computers and the male astronomers, these early notebooks and other materials are absolutely irreplaceable. They represent the history of the Harvard College Observatory and contain remarkable examples of primary source material showing the evolution of observation methods, along with early astronomy as a whole. Some of the historical methods represented here for transforming, correcting, and calibrating data from glass plates are not commonly known to modern astronomers. The documents are also relevant to the history of women in science as the collection contains material produced by the Harvard Computers. Women like Williamina Fleming, Annie Jump Cannon, Henrietta Swan Leavitt, Cecilia Payne-Gaposchkin and Antonia Maury made their mark in astronomy (and history!) at Harvard by studying these glass plates and publishing their findings in their own name. To learn more about the impact of the women computers, listen to an interview with Dava Sobel about her book " Glass Universe " describing their legacy.

Have questions? Want to start a discussion? See an interesting bit, note, or image in the margins? Tell us about it at [email protected] !

For more information about this collection, contact the John G. Wolbach Library and ask about Project PHaEDRA ( https://library.cfa.harvard.edu/project-phaedra ).

About Project Difficulty

Level 1 - beginner.

Content: all typed Language: English Format: letters, diaries, flyers, pamphlets, and one-page documents Subject Area Expertise/Special Skills: none required

Content: mostly typed, handwritten in print, or otherwise very clearly written/readable Language: English Format: memorabilia, advertisements, image captions, telegrams, diaries, letters, notes Subject Area Expertise/Special Skills: none required

Level 3 - INTERMEDIATE

Content: typed and handwritten materials in cursive or print Language: English Format: newspaper clippings, scrapbooks, letters/diaries/notes that may include annotations or margin notes Subject Area Expertise/Special Skills: experience reading cursive writing may be useful

Content: handwritten materials, primarily in cursive or somewhat difficult to read (predominantly from the 19th and 20th centuries) , audio recordings that are relatively easy to hear/decipher, and scientific materials Language: English and/or other languages that use Roman script but may require the use of diacritics (French, Spanish, German, Italian, etc.) Format: audio recordings, letters, diaries, notes and other written materials, projects with templated fields and special instructions Subject Area Expertise/Special Skills: some knowledge of non-English Roman-character/script languages and diacritics may be useful, as well as experience reading cursive handwriting. A general knowledge or familiarity with scientific terminology.

Level 5 - ADVANCED

Content: handwritten materials in cursive (from the 19th century or earlier) or in a non-Roman script language, audio recordings that are difficult to hear or are not in English, specialty materials/projects such as numismatics projects and the Project Phaedra notebooks Language: foreign languages that use non-Roman characters (Chinese, Japanese, Arabic, Greek/Cyrillic, Native American and Indigenous languages, etc.) and English Format: audio recordings, columned data/tables, manuscripts, letters, diaries, notes, currency sheets, coins Subject Area Expertise/Special Skills: knowledge of a specific language and access to a keyboard with the characters in that language may be required for certain projects. Experience reading cursive handwriting and familiarity with 19th century (or prior) handwriting and conventions/abbreviations may be useful, as well as knowledge of scientific terminology, astrophysics data, or linguistics.

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