DIGITAL CURRENCY & THEIR ECONOMIC VALUE

  • February 5, 2022
  • Posted by: OptimizeIAS Team
  • Category: DPN Topics
No Comments

 

 

DIGITAL CURRENCY & THEIR ECONOMIC VALUE

TOPIC: Economy

Context- Government has planned to launch digital currency.

Concept-

What is a digital currency?

  • Digital currency issued by the central bank is legal tender in digital form.
  • It is also often called Central Bank Digital Currency (CBDC).
  • A digital currency is the same as a fiat currency and is exchangeable one-to-one with the fiat currency; only its form is different.
  • It appears as liability or currency in circulation on a Central bank’s balance sheet.
  • Now, with the rise of digital modes of payment, a digital currency is expected to provide a convenient alternative to physical cash.

Is India getting a digital currency?

  • Finance Minister Nirmala Sitharaman has in the Union Budget proposed to introduce a Digital Rupee, using blockchain and other technologies, which would be issued by the RBI.
  • The Finance Bill has proposed to amend Sections 2 and 22 of the RBI Act, 1934, to provide clarity that CBDC would also be regarded as banknotes.

Has any other country issued digital currency?

  • According to the Atlantic Council, at least nine countries have launched their own CBDC with Nigeria launching the e-Naira.
  • China too has launched its digital yuan.
  • The US Fed and the European Central Bank are also researching and working on their own CBDCs.

What is the difference between digital currency and cryptocurrency?

  • A digital currency is issued by the central bank while cryptocurrencies such as Bitcoin and Ethereum are private and have no issuers as such.
  • Private cryptocurrencies are also unregulated and decentralised, and tend to be highly volatile.
  • In contrast, a CBDC will have the same value as paper currency and will be regulated and issued by a central bank.
  • However, both the Digital Rupee as well as private virtual currencies are based on blockchain technology.

Are cryptos such as Bitcoins and Ethereum legal in India?

  • The Union Budget 2022-23 has proposed a taxation scheme for virtual digital assets including cryptocurrencies and non-fungible tokens.
  • However, the Finance Minister has clarified that taxing these assets does not automatically bring legitimacy.
  • A separate process of consultation is underway regarding their regulation A bill on this would be tabled in Parliament.
DIGITAL CURRENCY & THEIR ECONOMIC VALUE economy