With reference to Central Bank digital currencies, consider the following statements : 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 a condition programmed into it such as a time-fame for spending it. Which of the statements given above is/are correct?

QUESTION

Medium

Economy

Prelims 2023

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

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

Which of the statements given above is/are correct?

Select an option to attempt

Explanation

Transactions without US Dollar or SWIFT : Traditional digital payments often rely on the US dollar as a reserve currency and might involve the SWIFT system for international settlements.
A central bank digital currency (CBDC) is the digital form of a country's fiat currency. CBDCs have the potential to bypass these traditional channels. Transactions between countries using their own CBDCs could happen directly, reducing reliance on the US dollar and potentially making cross-border payments faster and cheaper.
Programmable Money with CBDCs : CBDCs can be programmed with certain features. A central bank could issue a CBDC with a built-in spending time frame, for example, vouchers for specific purposes like public transport subsidies. These would expire after a certain period, ensuring the funds are used for the intended purpose.
Therefore, CBDCs offer unique functionalities compared to traditional digital currencies. They can potentially streamline international payments and introduce programmable features for targeted uses.