Cryptocurrency vs CBDC
- April 20, 2022
- Posted by: OptimizeIAS Team
- Category: DPN Topics
Cryptocurrency vs CBDC
Why in the news?
Deputy Governor of the RBI called cryptos worse than a Ponzi scheme and argued against “legitimizing” them. Yet, the RBI announced that it will float a Central Bank Digital Currency (CBDC).
|Basis||Cryptocurrency||Central Bank Digital Currency|
|Meaning||Digital token issued by a private institution or firm.||Central bank digital currencies are digital tokens, similar to cryptocurrency but issued by a central bank.|
|Legality||Not a fiat currency as not backed by the government.||A central bank digital currency is the digital form of a country’s fiat currency.|
|Technology||Based on cryptography and blockchain technology i.e a public ledger needs every user consent for transaction.||Central bank digital currencies are designed to be similar to cryptocurrencies, but they may not require blockchain technology or consensus mechanisms.|
|Intrinsic value||No intrinsic value but used for transaction due to acceptability, scarcity and anonymity.||They are pegged to the value of that country’s fiat currency.|
|Regulation||Cryptocurrencies are unregulated and decentralized thus, involving anonymous transactions.||As a centralized form of currency, they may not anonymize transactions as some cryptocurrencies do.|
|Effect on monetary policy||Complicates monetary policy transmission for being a parallel unregulated currency||CBDCs promote financial inclusion and simplify the implementation of monetary and fiscal policy.|
|Value||Cryptocurrencies are highly volatile, with their value constantly fluctuating.||CBDCs, backed by a government and controlled by a central bank, would provide households, consumers, and businesses with a stable means of exchanging digital currency.|
|Acceptability||Their value is dictated by investor sentiments, usage, and user interest.||Legal backing|
|Spending||Double spending as software on a computer|
can be used repeatedly.
|Fiat currency has the property that once spent, it cannot be spent again except through forgery, be-|
cause it is no more with the spender.
Fiat Currency-Fiat money is a government-issued currency that is not backed by a physical commodity like gold or silver. It is considered a form of legal tender that can be used to exchange goods and services.