CENTRAL BANK DIGITAL CURRENCY (CBDC)

Question 1

What is a Central Bank Digital Currency (CBDC)?

Answer 1

A digital form of a country’s official currency, issued and regulated by its central bank.

Question 2

How does a CBDC differ from cryptocurrency?

Answer 2

CBDCs are:

Centralized: Issued and controlled by a central bank.
Legal Tender: Backed by the government, guaranteeing their value.
Generally not designed for investment: Focus is on payments and transactions.

Question 3

What are some potential benefits of CBDCs?

Answer 3

Financial Inclusion: Can reach unbanked populations.

Payment Efficiency: Potentially faster and cheaper transactions.
Greater Control: Central banks have more tools for monetary policy.

Question 4

Name the first country to issue a CBDC and what it’s called.

Answer 4

The Bahamas, with the “Sand Dollar” (digital B$)

Question 5

Is a CBDC interest-bearing or non-interest bearing?

Answer 5

CBDCs can be designed as either interest-bearing or non-interest-bearing. The Bahamian Sand Dollar is a non-interest bearing CBDC.

Question 6

What is the name of Nigeria’s CBDC?

Answer 6

The eNaira

Question 7

Is the eNaira an interest-bearing currency?

Answer 7

No, the eNaira is a non-interest-bearing CBDC.

Question 8

What are some of the reasons why countries are interested in CBDCs?

Answer 8

Enhancing financial inclusion, modernizing payments systems, combating illicit financial activity, and increasing monetary policy effectiveness.

Question 9

How does a CBDC differ from cryptocurrency?

Answer 9

Centralized vs. Decentralized: CBDCs are centralized, controlled by the central bank. Cryptocurrencies are often decentralized, operating on distributed ledger technology like blockchain.
Backing: CBDCs are backed by the government and central bank, providing stability. Cryptocurrencies are often backed by their perceived value and network.

Question 10

What are some countries experimenting with CBDCs?

Answer 10

China, Britain, Japan, Singapore, Sweden, India, and many others.

Question 11

Why did India announce the Digital Rupee in Budget-2022?

Answer 11

Efficiency: CBDCs could make transactions more efficient and reduce costs.
Financial Inclusion: CBDCs could provide access to financial services to those without traditional banking access.
Innovation: A CBDC could foster innovation in financial technologies.

Question 12

What technology often underlies CBDCs?

Answer 12

Blockchain technology, although other technologies could also be used.

Question 13

How does CBDC differ from physical currency?

Answer 13

Exists in digital form only, issued and regulated by the central bank

Question 14

List three advantages of CBDCs.

Answer 14

Reduced costs of physical cash management (printing, transportation, etc.)
Decreased potential for counterfeiting.
Greater traceability of transactions (potentially aiding in combating illegal activity)

Question 15

Describe a potential drawback of CBDCs.

Answer 15

CBDCs could lead to reduced privacy as transactions may become more easily trackable by the central bank or government.

Question 16

Give an example of how CBDCs could offer programmability.

Answer 16

Government benefits could be programmed to be spent only on specific items within a set timeframe (e.g., funds for farmers restricted to purchasing seeds and tools within a certain period).

Question 17

How could CBDCs change international financial transactions?

Answer 17

CBDCs could ease cross-border payments by potentially removing intermediaries and reliance on traditional systems like SWIFT. Countries could directly conduct transactions using digital versions of their currencies.

Question 18

What is a potential tax implication of widespread CBDC adoption?

Answer 18

Increased transaction traceability could make it easier for tax authorities to monitor economic activity and potentially reduce tax evasion.

Question 19

What is the “digital divide,” and how does it pose a challenge to CBDC adoption?

Answer 19

The digital divide refers to the gap between those with access to technology (computers, smartphones, internet) and those without.
This creates inequality in CBDC access, as some people can’t use them due to lack of devices or connectivity.

Question 20

How does limited financial literacy impact CBDC usage?

Answer 20

Financial literacy means understanding how money and financial systems work.
People with low financial literacy may struggle to understand how to use and manage CBDC wallets and transactions securely.

Question 21

Discuss the challenge of limited access points in relation to CBDCs.

Answer 21

If businesses, especially in rural areas, don’t accept CBDCs, it limits their usability.
This can discourage adoption and make CBDCs less convenient than traditional cash in some locations.

Question 22

How are CBDCs vulnerable to events like cyberattacks, natural disasters, or power outages?

Answer 22

CBDCs rely heavily on electricity and internet infrastructure.
Disruptions in power or networks can make it impossible to access or use the digital currency, potentially causing economic standstills.

Question 23

What are the environmental concerns surrounding CBDC maintenance?

Answer 23

CBDC blockchains require vast amounts of energy to function, mainly for running servers.
This contributes to e-waste from server hardware and emissions related to power generation.

Question 24

What is the E-Rupee?

Answer 24

The E-Rupee is a digital form of currency issued by the Reserve Bank of India (RBI). It is considered a Central Bank Digital Currency (CBDC) and will be equivalent in value to traditional fiat currency.

Question 25

How does the E-Rupi differ from the E-Rupee?

Answer 25

E-Rupee: A true digital currency issued by the central bank. It will be legal tender.
E-Rupi: A digital voucher or prepaid code sent via SMS. It’s designed for specific purposes and must be redeemed at specific places. It is not considered legal tender.

Question 26

Who are the key entities behind the E-Rupee and E-Rupi?

Answer 26

E-Rupee: Reserve Bank of India (RBI)
E-Rupi: National Payments Corporation of India (NPCI)

Question 27

Can you use an E-Rupi voucher for any type of purchase?

Answer 27

No. E-Rupi vouchers are designed for specific purposes and beneficiaries. For example, the government might issue E-Rupi vouchers for fertilizer subsidies or healthcare support, and they can only be redeemed at authorized locations for those purposes.

Question 28

Describe a potential scenario where using E-Rupi would be beneficial.

Answer 28

The government wants to provide a food subsidy to a particular group of citizens. E-Rupi vouchers could be issued to ensure the funds are used specifically for food purchases and not diverted for other expenses. This could help target aid in a more efficient and controlled way.

Question 29

Besides E-Rupi, what other digital voucher or prepaid payment systems exist?

Answer 29

Gift cards: Issued by retailers for use within their stores.
Mobile recharge vouchers: Used to top-up prepaid phone plans.
Transit passes: Prepaid digital tickets for public transportation.