The Central Bank Digital Currency

Imagine that you no longer need to carry a wallet or a purse.  Every transaction that you make will be done online from your Phone or Tab.

Today let’s discuss what is CBDC.

How you can make transactions?

Is it a cryptocurrency?

And how it’s going to affect you in your daily life. Stay tuned.

CBDC Stands for Central Bank Digital currency.  Just imagine a world where there are no more physical currency and the only way to make transactions are via Digital currency. 

It is a digital form of currency issued by the central bank or government. While most central banks across the globe are exploring the issuance of CBDC, the key motivations for its issuance are specific to each country's unique requirements.


Evolution of Money

Money, it’s the medium of exchange. The oldest part of this medium started off with the Barter system. The only way to buy goods was to exchange them for personal belongings of similar value. Like livestock and grain–things directly useful in themselves.

For example - A farmer gives his cattle in exchange for some land.

In the Bronze Age: Commodity money, credit, and debt

Then Mesopotamian people created the shekel, which is considered the first known form of currency. Gold and silver coins date back to around 650 to 600 B.C.

Gold and silver have been the most common forms of money throughout history. In many languages, such as Spanish, French, Hebrew, and Italian, the word for silver is still directly related to the word for money. 


In Summary:

The first coins were introduced in 1000 BC – 400 AD.

Medieval coins and money of account - 400–1450 

First paper money came into existence around the seventh century- 618–907

It Started with Trade bills of exchange

Islamic Golden Age - the dinar was introduced.
Indian subcontinent - 1540–1545), introduced a silver coin called a rupiya


Payment cards


Finally, now Digital currency



No, A CBDC is simply digital fiat, whereas cryptocurrencies are digital assets on a decentralized network.

So what is a Fiat Currency?

Fiat money is backed by a country's government instead of a physical commodity or financial instrument. This means most coin and paper currencies that are used throughout the world are fiat money. This includes the U.S. dollar, the British pound, the Indian rupee, the Euro, etc. 

The value of fiat money is not determined by the material with which it is made. That means the metals used to mint coins and the paper used for bills are not valuable themselves. Rather, the value of the money is determined by the government itself. It retains its value through government stability and that of the nation's economy.


Factors affecting Digital currency:

  • Only available online on computers and mobile phones.
  • In electronic arrangement only, not physical
  • Doesn’t need Intermediaries like a medium (banks)
  • An inexpensive method for the interchange of currencies
  • All cryptos are digital currencies but all digital currencies are not cryptocurrencies.
  • CBDC is a legal tender
  • Is issued by the central bank and will be in digital form only
  • Same as Fiat currency
  • Can be transacted by E wallets backed by Blockchain
  • Backed by Government and is non-convertible and irredeemable


Digital E Rupee Currency 

The Reserve Bank of India has defined CBDC as a legal tender issued by a central bank in a digital form. It is the same as a fiat currency and is exchangeable one-to-one with the fiat currency. Named the Digital Rupee, or e-Rupee, the digital currency will be the same as a sovereign currency and will be in alignment with their monetary policy.

CBDCs will work seamlessly where the transactions won’t have to pass through multiple banks, like the UPI. The CBDC transaction can happen nearly instantaneously on one digital ledger. For those who are unbanked, CBDCs would provide a way to transfer money digitally, which is not possible at present with UPI or a wallet.



There are nine countries that have fully launched their CBDCs. Eight of the nine countries are located in the Caribbean. The Sand Dollar of the Bahamas was the first CBDC in the world, which was launched in 2019. 

Whereas CBDCs, though use blockchain technology, is entirely centralized. A central bank oversees and facilitates the transactions with the help of other third-party organizations.  At the core, cryptocurrencies are private money, whereas CBDCs are government-backed forms of money. Therefore, CBDC is touted as a safe form of money.


So, will CBDC boost or bring down the Indian economy?

The informal or illicit sector makes up close to 53% of the Indian economy overall (GLG Insights, January 2022). Codifying the paper-based currency culture will help reduce the shadow economy in India by bringing more transparency and efficiency.

Secondly, the expenses associated with paper money consume a significant portion of the RBI's account books. Damaged money further raises the expense of managing and processing fresh currencies for the RBI. These can be decreased with the usage of controlled digital currency.

Two types of CBDCs

Wholesale and Retail version



is to support central banks' pursuit of monetary and financial stability through international cooperation, and to act as a bank for central banks.


Established in 1930, the BIS is owned by 63 central banks, representing countries from around the world that together account for about 95% of world GDP. Its head office is in Basel, Switzerland and it has two representative offices: in Hong Kong SAR and in Mexico City, as well as Innovation Hub Centres around the world.


The Underlying issues with CBDC

The market for cryptocurrencies is neither transparent nor confidence-inducing for most people as users and holders are wary of the technology and its valuation.

Weaker Banks may struggle to retain low-cost deposits

Upgrading Hacking of E wallets

Deteriorating use of Bank notes

Less anonymity

There is a need to popularize electronic platforms 

Strict KYC Norms required

A protocol for offline use has to be worked out

Data protection act

Digital Dollars can be differentiated depending on their needs


The Government’s Influence on Digital Currency


By programming different Digital currencies, the government can operate the currencies to work in a specific area. The currency can be invested or used in a specific area only and nowhere else.

They can create different bills depending on their needs.

For example, A particular currency can work only for a specific category and not for anything else. Maybe a currency created for utilities can’t be used for paying insurance or medical payment. 

This way they can influence the cost of purchasing certain types of goods. 

They can directly stimulate or reduce spending as well.

Like currently in Canada the Government has the power to cut off livelihood for those who don’t wish to comply with it.

By programming currency, the government can make people do what it wants.

Government can stimulate or suppress inflation it can give or take.


You too can track the progress of CBDC across the entire world on the website. the link has been shared below. 

You can verify all countries following the Digital currency concept. 

India is currently in the testing phase. So, it can be sooner rather than later that it will be available to the retailer.

Well, the CBDCs are currently live for the wholesale version in India and soon can be active for retailers as well. 

November 12, 2022

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