Critically examine the potential benefits and challenges associated with central bank digital currency (CBDC).
Kartavya Desk Staff
Topic: Indian Economy and issues relating to planning, mobilization, of resources, growth, development and employment.
Topic: Indian Economy and issues relating to planning, mobilization, of resources, growth, development and employment.
4. Critically examine the potential benefits and challenges associated with central bank digital currency (CBDC). (250 words)
Difficulty level: Moderate
Reference: Live Mint , Insights on India
Why the question: India’s CBDC can be popularized in various ways, like offline access and programmability. But to challenge cash, RBI’s e-money will need to offer anonymity. To firm up such a promise, it’s best to legislate it. Key Demand of the question: To write about CBDC, its potential benefits and challenges associated with it. Directive word: Critically examine – When asked to ‘Examine’, we have to look into the topic (content words) in detail, inspect it, investigate it and establish the key facts and issues related to the topic in question. While doing so we should explain why these facts and issues are important and their implications. When ‘critically’ is suffixed or prefixed to a directive, one needs to look at the good and bad of the topic and give a fair judgment. Structure of the answer: Introduction: Start by explaining the emerging concept central bank digital currency (CBDC) Body: In the first part, write about potential benefits that India can accrue from CBDC. financial inclusion, the cashless society, decrease the cost of printing, expanding the digital economy and empowering citizens etc. Next, write about potential challenges with regards to CBDC. User adoption, security, complexity, domination by Chinese and Opportunity cost due to RBI’s reluctance etc. Conclusion: Conclude with way forward as to how India should step up to CBDC.
Why the question:
India’s CBDC can be popularized in various ways, like offline access and programmability. But to challenge cash, RBI’s e-money will need to offer anonymity. To firm up such a promise, it’s best to legislate it.
Key Demand of the question:
To write about CBDC, its potential benefits and challenges associated with it.
Directive word:
Critically examine – When asked to ‘Examine’, we have to look into the topic (content words) in detail, inspect it, investigate it and establish the key facts and issues related to the topic in question. While doing so we should explain why these facts and issues are important and their implications. When ‘critically’ is suffixed or prefixed to a directive, one needs to look at the good and bad of the topic and give a fair judgment.
Structure of the answer:
Introduction:
Start by explaining the emerging concept central bank digital currency (CBDC)
In the first part, write about potential benefits that India can accrue from CBDC. financial inclusion, the cashless society, decrease the cost of printing, expanding the digital economy and empowering citizens etc.
Next, write about potential challenges with regards to CBDC. User adoption, security, complexity, domination by Chinese and Opportunity cost due to RBI’s reluctance etc.
Conclusion:
Conclude with way forward as to how India should step up to CBDC.