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Central banks across the world have increased their attention to digital currencies. In this context examine the implications and limitations of introduction of Central Bank Digital Currency in India.

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

5. Central banks across the world have increased their attention to digital currencies. In this context examine the implications and limitations of 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:

Examine the implications and limitations of introduction of Central Bank Digital Currency in India.

Directive:

Examine – When asked to ‘Examine’, we must look into the topic (content words) in detail, inspect it, investigate it and establish the key facts and issues related to the topic in question. While doing so we should explain why these facts and issues are important and their implications.

Structure of the answer:

Introduction:

Start with the context of the question.

Body:

The answer body must have the following aspects covered:

Discuss first the need for Central Bank Digital Currency in India.

Central Bank Digital Currency (CBDC) is nothing but a digital version of so-called “fiat money”.  Fiat money is the regular currency a country uses, as established and regulated by its government.  CBDC is a digital payment instrument that is denominated in a national currency.

Discuss the pros and cons.

Conclusion:

Conclude suitably.