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-frame 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-frame for spending it.

Which of the statements given above is/are correct?

Select an option to attempt

Explanation

Statement 1 is Correct: Central Bank Digital Currencies (CBDCs) allow for direct peer-to-peer cross-border transactions. By using a common platform or bilateral arrangements between central banks, payments can be settled directly without relying on the US dollar as a vehicle currency or the SWIFT (Society for Worldwide Interbank Financial Telecommunication) messaging system.

Statement 2 is Correct: CBDCs are considered 'programmable money.' Central banks can embed smart contracts into the currency, allowing it to be distributed with specific conditions, such as an expiration date (time-frame) for spending or restricting its use to specific purposes like fuel or food subsidies.

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