About Central Bank Digital Currency (CBDC):
- CBDCs are a form of digital currency issued by a country's central bank.
- Examples of central banks include the Reserve Bank of India (RBI), the US Federal Reserve System, the Bank of Japan.
- CBDCs are similar to stablecoins, except that their value is fixed by the central bank and equivalent to the country's fiat currency.
- Advantages:
- It provides businesses and consumers with privacy, transferability, convenience, accessibility, and financial security.
- It also decreases the cost of maintenance that a complex financial system requires.
- It reduces cross-border transaction costs.
- It would also reduce the risks associated with using digital currencies, or cryptocurrencies, in their current form. CBDCs, backed by a government and controlled by a central bank, would give households, consumers, and businesses a secure means of exchanging digital currency.
What are Stablecoins?
- They are cryptocurrencies whose value is pegged or tied to that of another currency, commodity, or financial instrument.
- Stablecoins aim to provide an alternative to the high volatility ofthe most popular cryptocurrencies, including Bitcoin (BTC).
- Unlike cryptocurrencies like Bitcoin, stablecoins’ prices remain steady in accordance with whichever fiat currency backs them.
- E.g., USDC stablecoin is backed by dollar-denominated assets.
