Topic: Budgeting.
6. A major budget announcement was the launch of central bank digital currency (CBDC). Analyse the various the challenges pertaining to CBDC that must be overcome for it be successful. (250 words)
Difficulty level: Moderate
Reference: Indian Express
Why the question: Finance Minister Nirmala Sitharaman in her fourth budget speech announced that the Reserve Bank of India (RBI) will issue India’s own digital Rupee in Financial Year 2022-23.
Key Demand of the question: To write about CBDC, its challenges and steps needed for it to be successful.
Directive word:
Analyse – 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.
Structure of the answer:
Introduction:
Start by explaining concept central bank digital currency (CBDC)
Body:
In the first part, explain the technology behind CBDC – Blockchain giving rise to secure digital instruments. Also, mention the potential benefits that India can accrue from CBDC. financial inclusion, the cashless society, decrease the cost of printing, expanding the digital economy and empowering citizens etc.
Next, write about potential challenges with regards to CBDC – Relation with rupee, User adoption, security of the users, complexity and financial system robustness, regulation by RBI’s etc.
Conclusion:
Conclude with way forward as to how India should step up to CBDC.
