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·
Countries with a lot of physical money
consumption (e.g. Denmark, Germany, Japan, even the USA) who want to make the
problem more efficient.
·
Central banks are working to meet the
public demand for digital currencies, which is reflected in the growing use of
private cryptocurrencies, thus preventing further damage to such private
currencies. .
The
wallet ecosystem is widespread on the Unified Payment Interface (UPI) network
familiar to Indians.
However, CBDCs are different
in that the central bank controls the infrastructure and payments are made
directly in currency issued by the central bank (rather than from commercial
bank reserves).
A centralized payment
system avoids the risk of the payment system being concentrated in the hands of
individuals. Moreover, such a system minimizes settlement risk as the entire
system is supported by the state.
CBDC-based networks can
lead to real-time transactions, establish a globalized payment system with
minimal transaction costs, increase transparency and create trust in the
business environment.
Digital currencies also
enable programmable money and, when combined with India's JAM trinity (linking
Jan Dan accounts, Adhar and mobile phones), could herald innovations in public
welfare systems and financial inclusion.
For example,
governments can minimize leakage and corruption by setting expiry dates on the
spending of the subsidies they provide and regulating where the subsidies are
spent (such as education and housing).
Digital currency will
also reduce central bank logistics costs associated with printing,
transporting, storing and distributing currency.
As such, CBDCs aim to
bring fiat currencies the benefits of cryptocurrencies, such as programmable
money, increased transparency, and reduced logistics costs, without the
drawbacks of anonymity and lack of control.
At the same time, the
architectural design of this digital currency requires careful consideration.