Page 32 - Banking Finance June 2022

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avoids problems inherent to cash such as short-changing, A general concern is that the introduction of a CBDC
cash theft & conflicting testimonies would precipitate banks' funding position weaker
Protection of money as a public utility: digital Since CBDCs are centralized, the controller of CBDC can
currencies issued by Central Bank would provide a add or remove money from anyone's account with a flip
modern alternative to physical cash - whose abolition is of a switch
currently being envisaged
Safety of payments systems: Secure & Standard By knowing the difference between CBDC and Cypto-
interoperable digital payment instrument issued & currency, we can understand the concept in a better way
governed by Central Bank boosts confidence and
increases trust in the entire national payment system Point CBDC Crypto currency
Preservation of seigniorage income: Avoid a Support Government Private money
predictable reduction of seigniorage income for backed money
Government in the event of a disappearance of physical
Block chain type Use permissioned Use permission-
cash. (Seigniorage income is essentially the profit earned
(private) less (public) block
by the Government by printing currency)
blockchains chain
Banking competition: the provision of free bank Anonymity Users will have Users enjoy
accounts at the Central Bank offering complete safety
their identity tied anonymity
of money could attract bank deposits
up to an existing
Monetary policy transmission: Issuance of Central bank account and
Bank base money through transfers to public could an equal amount
constitute a new channel for monetary policy of personal
transmission (helicopter money) which would allow information
more direct control of money supply than indirect tools
Decentralisation Central Bank Authority is
such as quantitative easing and interest rates. (Mr.
decides the rules delegated to the
Milton Fiedman used the term, Helicopter money to
user base
signify "unexpectedly dumping money onto a struggling
Use case Can be used for Used for
economy with the intention to shock it out of a deep
payments and speculative
slump"
other monetary purposes and for
Financial safety: CBDC would potentially render deposit
transactions payments as well
guarantee schemes less needed
Data privacy & Less likely Undoubtedly
security emphasize privacy independent with
Though there is good number of advantages,
and data peer to peer
there is potential risks too
model

No country has officially launched virtual form of a fiat
currency. But several countries are looking into the
viability of creating & issuing CBDC.

References:
1. Wikipedia
2. Investopedia
3. Financial Express
4. Jagranjosh

32 | 2022 | JUNE | BANKING FINANCE