Why CDBC (Digital Currency) is the Need ?

Last week I published a post about CBDC in which I talked about it what central banks are planning with this. Like I said that this is a digital form of fiat money and has a no different value than fiat and this is in fact the important point. The world is going through a revolution in payments and moving toward a digital economy where we will be having very little need for cash. Cash handling is not easy and requires many resources that cost us money and if we get a digital alternative then it can help us save the money or its management.

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Many countries are working on CDBC and India is also one of them and I a glad to share that rbI itself is more interested in this so we can see it happening soon.

What is CBDC - Central bank digital currency is the digital form of fiat money and it will be controlled by the government so they can decide all aspects of it. In simple words its the digital version of cash (notes or coins) that we use every day in the traditional world. Every country has a currency with this the same would be available in digital form.

Why CDBC is required

There are a couple of reasons why its required-

• There is us huge cost involved with physical currency in form of printing, storage, and distribution management. Every year govt has to spend a lot of money to have sufficient currency in circulation and also to ensure that wastage is taken care of. Since notes are printed on paper so have a life span that can be a few years. Some countries have adopted plastic notes which last longer but again it costs, even more, one time that is much higher than paper printing. With CDBC it can reduce drastically which will lead in money-saving.

• Storage is another requirement for currency and it requires the fastest and bigger place for RBI to have this currency safely stored. Digital money would not require physical space so here also govt can save money and that too this will be a significant saving.

• Currency distraction is another aspect that we can't ignore. Banks have ATMs and branches across the countries and they spend quite a big amount on distribution. They deliver currency to their branches as well as ATMs. This is an ongoing activity and it invoices resources like staff, conveyance, etc. Since CDBC will be in digital form so the need for atm will be reduced. People who will not be able to access this digital money will use ATMs however a major chuck will accept the digital money.

• This is a digital currency but not a cryptocurrency so govt will have full control over it and can increase or decrease its supply any time depending upon the market situation.

• CDBC will also reduce dependency on transactions in the banking system since people would be having digital money they need not deposit cash to get it added in the bank account.

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CDBC is in no way connected to cryptocurrency and having a legal framework for crypto will not affect it because both are different things and have different use cases too. The majority of countries will not accept crypto as a legal lender but CDBC is legal tender by default.
Its surprising but good that RBI which was against crypto earlier has supported the CDBC that they can see how easy it make their life. With the encouragement of e-money, we can expect much more in crypto as well.

Currency management is one of the important parts in any country's economy so if its managed in a way thacostsst too less then it will surely contribute to a better economy and that's what the countries are going to achieve. Central banks have realized that with these changes revolutionary results are expected.

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This year 2021 has gone by almost 66% and only 4 months left so we cant expect more in this within the year however there could be some great updates next year and maybe some countries take a bold step to adopt digital money and India can also surprise if things go well.

Thank you so much

Stay Safe