Central Bank Digital Currency uses a blockchain-based token to represent the country’s official digital currency. The Central Bank, in the case of India, the RBI.
Unlike privately owned cryptocurrencies, a CBDC would be centralized by a country’s monetary authority. Also, to prevent imitation, each CBDC unit will have its own serial number.
CBDC's are aided by monetary reserves such as gold or foreign currency reserves. Each CBDC unit can be used for payments just like cash, coins. Except, it is virtual money.
Two types of CBDC that exist are : retail and wholesale.Wholesale CBDCs are meant for use by financial institutions that hold reserve deposits with the central bank.
On the other hand, Retail CBDCs are used by individuals, households, and corporations. It can be used by households and businesses to make payments.
Why did CBDC come into existence? To avoid scams, hacks, and thefts of data! It is considered a more convenient and secure mode of payment.
CBDC model provides a resilient alternative to consumers because it is less susceptible to attacks, tampering, and technological disruptions and motiored by RBI.
Countries that pilot-tested CBDCs are Bank of England ,People’s Bank of China , Bank of Canada , and banks of Venezuela, Thailand, Sweden, and Singapore, among others.
According to the RBI, an interest-bearing CBDC would improve an economy’s ability to respond to changes in the policy interest rate and enhance monetary policy transmission.