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Critically analyse the viability and concerns over introduction of Central Bank Digital Currency in India.

Topic: Indian Economy and issues relating to planning, mobilization, of resources, growth, development and employment.

4. Critically analyse the viability and concerns over introduction of Central Bank Digital Currency in India. (250 words)

Reference:  The Hindu

Why the question:

The Reserve Bank of India is likely to soon kick off pilot projects to assess the viability of using digital currency to make wholesale and retail payments to help calibrate its strategy for introducing a full-scale central bank digital currency (CBDC).

Key Demand of the question:

Critically analyse the viability and concerns over introduction of Central Bank Digital Currency in India.

Directive:

Critically analyze – When asked to analyse, you have to examine methodically the structure or nature of the topic by separating it into component parts and present them as a whole in a summary. When ‘critically’ is suffixed or prefixed to a directive, one needs to look at the good and bad of the topic and give a fair judgment.

Structure of the answer:

Introduction:

Start with introduction of Central Bank Digital Currency in India.

Body:

The answer body must have the following aspects covered:

Discuss first what is the CBDC or National Digital currency? – A Central Bank Digital Currency (CBDC), or national digital currency, is simply the digital form of a country’s fiat currency. Instead of printing paper currency or minting coins, the central bank issues electronic tokens. This token value is backed by the full faith and credit of the government.

Explain the need for it.

Discuss the challenges in rolling out National Digital Currency.

Conclusion:

Conclude with way forward.