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Central Bank Digital Currency (CBDC) is a relatively new concept with potential benefits and challenges. Form a critical analysis of its performance and give suggestions for its improvement.

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

5. Central Bank Digital Currency (CBDC) is a relatively new concept with potential benefits and challenges. Form a critical analysis of its performance and give suggestions for its improvement. (250 words)

Difficulty level: Moderate

Reference: Live Mint

Why the question:

The article discusses the potential for the Reserve Bank of India (RBI) to introduce an electronic rupee (e-rupee) and suggests that the Unified Payments Interface (UPI) could play a crucial role in this initiative.

Key Demand of the question:

To critically analyse the performance of CBDC and suggest measures to improve it.

Directive word: 

Critically analyze – When asked to analyse, you must examine methodically the structure or nature of the topic by separating it into component parts and present them 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 balanced judgment on the topic.

Structure of the answer:

Introduction: 

Start by explaining the concept central bank digital currency (CBDC).

Body:

In the first part, write about the benefits of CBDC. financial inclusion, the cashless society, decrease the cost of printing, expanding the digital economy and empowering citizens etc. Cite examples/statistics to substantiate.

Next, write about challenges with regards to CBDC. User adoption, security, complexity, domination by Chinese and Opportunity cost due to RBI’s reluctance etc.

Conclusion:

Conclude with a way forward.