With reference to Central Bank digital currencies, consider the follow

With reference to Central Bank digital currencies, consider the following statements :

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1. It is possible to make payments in a digital currency without using US dollar or SWIFT system.
2. A digital currency can be distributed with condition programmed into it such as a time-frame for spending it.

Which of the statements given above is/are correct?

1 only

2 only

Both 1 and 2

Neither 1 nor 2

Answer is Right!

Answer is Wrong!

This question was previously asked in

UPSC IAS – 2023

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Both statements are correct. Central Bank Digital Currencies (CBDCs) offer capabilities that can bypass traditional international payment systems like SWIFT and can potentially incorporate features like programmability.

– CBDCs allow for direct digital payment rails that do not necessarily rely on intermediary banks or existing international systems like SWIFT. This can facilitate faster and potentially cheaper cross-border transactions without requiring conversion to a specific reserve currency like the US dollar for routing.
– CBDCs can be designed with built-in rules or conditions, making them ‘programmable’. This could include setting time limits for spending (expiry dates), restricting usage to specific goods or services, or triggering payments upon fulfillment of certain conditions.

CBDCs are digital forms of a country’s fiat currency issued by the central bank. They are distinct from cryptocurrencies like Bitcoin (which are decentralized) and stablecoins (which are typically issued by private entities and pegged to an asset). Many central banks globally are researching and piloting CBDCs for various potential benefits, including payment system efficiency, financial inclusion, and monetary policy implementation.

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