Central Bank Digital Currency – A Curtain Raiser, A Catalyst

1
Central Bank Digital Currency A Curtain Raiser,
A Catalyst.
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Central Bank Digital Currency A Curtain Raiser,
A Catalyst.

• I cant predict the future as to what will unfold
  prospectively for all of us, as no one would know
  what lies ahead, but I have made this attempt to
  pen down my views for the benefit of the readers
  of this article which dwells on the topic of
  Central Bank Digital Currency A Curtain Raiser,
  A Catalyst.
• Traditionally, cash is considered as King
  because of the distinctive anonymity of its
  ownership, unless it is admitted and confirmed by
  its owner.  With the amendment of Reserve Bank of
  India Act, 1934 and also corresponding changes in
  the Indian Coinage Act, 2011, most of us are
  inquisitive as to what these changes would mean
  to all of us?Read more at https//taxguru.in/rb
  i/central-bank-digital-currency-cbdc-curtain-raise
  r-catalyst.htmlCopyright Taxguru.in

3
Central Bank Digital Currency A Curtain Raiser,
A Catalyst.

• Introduction Most of us are familiar with the
  age-old theory/practice of Cash being used as a
  means of exchange for procurement of goods or
  services or both. In ancient times, Cash was
  represented in the form of physical coins of
  metals viz. Gold, Silver, Bronze, Iron etc. Each
  coin had its equivalent underlying value which
  was widely accepted as a mechanism of exchange
  for carrying out trade, commerce and business
  activities. Govt. has announced launch of CBDCs
  (or e-Rupee) during the presentation of Finance
  Bill, 2021 which has triggered a lot of
  inquisitiveness amongst many stakeholders from
  the perspective of its Advantages, Benefits,
  Challenges, Threats and Concerns etc. As of
  today, most of the stakeholders are quite well
  versed with modern means of payments viz. RTGS,
  NEFT, IMPS, UPI, G Pay, Pay TM, Digital Wallets,
  Amazon Pay, Phonpe and so on. Thus, it can be
  anticipated that most of them will not experience
  any major hiccups or teething problems in
  adapting to the new novel concept of CBDCs.

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Central Bank Digital Currency A Curtain Raiser,
A Catalyst.

• Will such introduction of CBDC act as a
  substitute for physical cash or whether cash and
  CBDC would run as parallel sub-systems in the
  Indian Cash Eco-system?Meaning of CBDCs
  (Central Bank Digital Currency)
• CBDC is known as Central Bank Digital Currency
  (hereinafter referred as CBDC), a modern-day
  currency avatar involving electronic data record
  and documentation. CBDCs is electronic form of
  physical currency viz. coins and/or paper
  currency to be used by all. CBDCs would be
  considered as legal tender as it is recognised by
  the Govt. of India by amending RBI Act ,1934
  Coinage Act, 2011.

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Central Bank Digital Currency A Curtain Raiser,
A Catalyst.

• The concept of CBDCs derived its origin from the
  crypto currencies which have gained substantially
  in terms of its nature, size and volume. Such
  crypto transactions presently dont have much of
  substance over form, shrouded as they are in
  secrecy, leading to   mind-boggling implications
  when operating in a non-regulatory environment, a
  system which involves data mining as and when the
  need arises, which actively monitors the demand
  and supply equation while introducing cryptos
  through the block chain technology in the market
  place. On the other hand, CBDCs would be
  considered as legal tender built on block chain
  technology platform using digital wallets or
  token and such wallets and/or token are recorded
  in Distributed Technology Ledgers, and its value
  would be expectedly supported by the intrinsic
  values of gold and silver reserves in the economy
  held by the RBI, and also possibly not pegged to
  fluctuations in the prices of Gold. It is a new
  mode of exchange currency which can be exchanged
  one to one with existing currency. Such CBDC is
  an asset owned by the owner of such currency and
  at the same time it would constitute an
  obligation on the RBI to pay to such owner. 
  Thus, it is a liability of the RBI in its
  financial statements.

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Central Bank Digital Currency A Curtain Raiser,
A Catalyst.

• To sum up, CBDCs would be termed as a legal
  tender unlike the extant Crypto currencies which
  are not considered as legal tender. Thus, CBDCs
  will have a clear edge over crypto currencies as
  it is legally recognised, easily transferable and
  its value is legally enforceable in the interest
  of all the stakeholders.
• Purpose of Introducing CBDCs in Indian Eco-system
  
• CBDCs are sought to introduced in the Indian Eco
  system with enshrined purposes such as risk
  mitigations in trade, business and commerce cost
  optimisation and trimming due to printing and
  replacement of physical currency due to its
  salvage, physical movements and logistics and/or
  hedge against loss arising due to theft and
  consequently triggering insurance costs etc.

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Central Bank Digital Currency A Curtain Raiser,
A Catalyst.

• With the introduction of CBDCs, it may act as a
  tool of discouragement for investing monies in
  crypto currencies and it will seek to create
  digital trails of such currencies when
  transacted. One of other objectives of
  introducing CBDCs is to control illegal,
  nefarious and money laundering activities carried
  out by certain cross sections of people which
  tend to disrupt the effective and efficient
  functioning of the economy. 
• CBDCs A Nebulous Concept in India and the
  Global Canvas
• CBDCs in its form is a nebulous concept emerging
  in the eco system of India as well as on the
  World Canvas. According to the survey published
  by BIS (Bureau of International Settlements), 86
  of Global Apex Banks are exploring the options of
  introducing the CBDCs in their eco-systems and
  some apex banks are exploring its introduction on
  pilot project basis to the test the effectiveness
  and efficiency of introducing such CBDCs.

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Central Bank Digital Currency A Curtain Raiser,
A Catalyst.

• Bahamas is the first country to introduce
  nation-wide CBDCs known as Sand Dollar ,
  followed by Nigeria which rolled out eNaira in
  2020, then by China as it introduced a pilot
  currency e- CNY in April 2020 and so on. Soon,
  most other countries are set to introduce CBDCs
  in one form or another.
• CBDCs architecture may be in Direct and Indirect
  formats but due to inherent issues in the
  maintenance of data due to its size, nature and
  volume of records maintained by the Apex Bank,
  Indirect Format would be introduced whereby Apex
  Bank will transact through Banks, Finance
  Companies and Intermediaries who in turn will
  distribute to the end users in the electronic
  form.  Indirect Format is similar to existing
  decentralised banking structure in the economy.
  CBDCs would be introduced in tranches viz.
  Wholesale form (CBBCs -W) or Retail form (CBBCs
  -R).

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Central Bank Digital Currency A Curtain Raiser,
A Catalyst.

• Wholesale form (CBBCs -W) would be used to
  facilitate the Big Companies, Banks, Finance
  Companies and/or other intermediaries in general
  to manage larger scale of transactions for
  settling their business transactions using CBDCs.
  Retail Form (CBBCs -R) would be useful for most
  of the retail end users like Shop Keepers,
  Vendors, Small Traders, Consumers and so on.
• Advantages and Benefits of CBDCs
• With the introduction of CBDCs in the Indian Eco
  system, it would be termed as providing the
  benefits of both the worlds to the people using
  the same viz. physical cash as well as electronic
  cash. Both the types will operate parallelly and
  seamlessly by harnessing modern technology.

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Central Bank Digital Currency A Curtain Raiser,
A Catalyst.

• In addition to the above, it will provide the
  safety of legal currency, reducing if not
  avoiding the cost of printing, transportation,
  logistics, holding and the resultant process
  loss. These benefits are of course enjoyed by
  crypto currencies, and now in its avatar of CBDC
  it will operate in a regulatory environment,
  establishing digital trails in the currency
  transaction documentation similar to
  documentation of existing Banking environment in
  the economy, which augurs well in terms of
  transparency, tracking and accountability.
• Further, CBDCs can act as a faster, smooth,
  effective, efficient and safe means of settling
  international transactions in a speedy manner
  which is backed and recognised by economies of
  both the countries which would reduce overall
  cost of doing trade, business and commerce in
  general by reducing network of correspondent
  banks to settle international trade and commerce
  transactions.Read more at https//taxguru.in/rb
  i/central-bank-digital-currency-cbdc-curtain-raise
  r-catalyst.htmlCopyright Taxguru.in

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Central Bank Digital Currency A Curtain Raiser,
A Catalyst.

• With the introduction of CBDCs, it may provide
  the required impetus to convert more of the
  informal economy into formal economy whereby GDP
  of the economy is increased multi fold times due
  its acceptance and usage increasing
  progressively. This could help India achieve its
  ambitious target of reaching 5 billion mark as
  it catalyses economic transformation if not
  revolution in the way of doing of trade, business
  and commerce in general.In a nutshell, the way
  I envisage, with the advent of CBDCs we may
  witness the following
• Sea change in functioning of the Payment
  mechanism system of the country Improvised
  digitization
• Increase and expansion of Taxbase of the economy
• New tool for the Fiscal monitoring and Budgetary
  Control by the Govt.
• Effective and efficient Balance of Payments
  Position of the economy
• Money movement with substantial reduction in
  risks
• Tax evasion would be drastically reduced at a
  pragmatical level
• Increased Digital Trail of transactions
• Use of Physical cash would be minimised
• No volatility like crypto currencies
• Substantial impact on money laundering as well as
  criminal activities
• Read more at https//taxguru.in/rbi/central-bank-
  digital-currency-cbdc-curtain-raiser-catalyst.html
  Copyright Taxguru.in