Central Bank Digital Currency and its impact on the Indian Financial system

Abstract

Cash has been used as a means of exchange for a long time and has been changing its form from paper to paperless. It has been an effective tool in shaping the payment system and acts as an important pillar of the financial system. CBDC (Central Bank digital Currency) is a form of digital currency which is controlled by the country’s central bank and backed by the Government. With the rise of electronic payments and innovations in the financial sector has highlighted the lacking of the existing payments system. Role of central Bank has been questioned since the emergence of the crypto currency like Bitcoin in 2008.Moreover, the monetary authorities around the world are of the view that the society’s trust in the financial system is because of the Central Bank guardianship. There has been an increase in the number of Central banks around the globe from ~60% in 2017 to 80% in 2019 who are looking to come up with a CBDC as published in the report of Bank for International Settlements (BIS) (Todd & Rogers, 2020).The paper aims to study the implication of CBDC on the Indian Financial system.