Reduced settlement risk, more efficient payment option, and higher seigniorage are among the benefits provided by Central Bank Digital Currency (CBDC), the Ministry of Finance said in the parliament. The statement was made in response to a question posed by Lok Sabha MP Rakesh Singh on December 6. The Ministry also said that it has received a proposal from the Reserve Bank of India for CBDC. Why this matters? The Cryptocurrency Bill is expected to be introduced in this session of the parliament and while we do not have a clear picture on how the Bill will regulate private cryptocurrencies, it is widely expected to provide a framework for CBDC. The benefits laid out by the Finance Ministry can serve as a good indication on what the proposed framework might look like. What are some of the benefits of CBDC? According to the Finance Ministry's response, CBDCs provide the following benefits: Reduced dependency on cash Higher seigniorage due to lower transaction costs (seigniorage is the profit made by a government when issuing currency, calculated as the difference between face value of coins and production costs) Reduced settlement risk More robust, efficient, trusted, regulated and legal tender-based payments option Will not have volatility which is normally associated with private cryptocurrencies Despite these benefits, there are associated risks which need to be carefully evaluated against the potential benefits, the ministry added in its response. What purpose will a CBDC serve in India for users? Leave a comment What proposal has RBI put forth for CBDC? When asked…
