RAJESH BANSAL, SOMYA SINGH
Central bank digital currencies (CBDCs) are essentially the digital version of cash. Like cash, they are issued by and have their value guaranteed by central banks. For example, an Indian CBDC would be denominated in rupees, with one digital rupee having the same value as a one-rupee coin.
These digital currencies are the latest innovation in payments technology and could change the way financial transactions are done. Whether the task is sending money abroad in a jiffy or making digital financial transactions without using the internet, CBDCs can help solve many of today’s payment issues like long transaction times and high fees.
If and when CBDCs become widely used, people will be able to exchange currency with each other digitally in real-time using mobile phones, computers, smartwatches, bar code scanning, and so on. In China, the digital yuan—which is already circulating on a trial basis—can be exchanged with authentication procedures using facial recognition.
While no major country has fully launched its own digital currency yet, China has already taken the lead, and several other countries are scrambling to catch up.
Digital payment systems like credit cards, debit cards, or mobile payment methods (digital wallets like Amazon Pay, Apple Pay, and Venmo) operate quite differently from digital currencies. Traditional digital payment methods are carried out by exchanging a certain amount of money held in an account for goods or services. Such exchanges of traditional forms of money do not happen in real-time; instead, such transactions are tallied and settled after a period ranging from a few minutes to a few days. (Just think about how it usually takes a few days for a credit card charge to appear on your statement after you buy something.) In contrast, exchanging digital currency involves a near real-time settlement process, as CBDCs are not a mere representation of physical money stored elsewhere but a complete replacement for currency notes.
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