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Ruchika Bhagat

MD, Neeraj Bhagat & Co.

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Cash And New-Age Currency To Co-Exist Together!

Relevant to today’s era, one of the primary factor is that a CBDC needs to coexist with cash and other types of money in order to maintain a flexible and innovative payment system in the economy.

We value innovation and diversity, even when it comes to money. Today, we can pay by swiping a credit card, waving our phones, or clicking a mouse. We could also hand over notes and coins, though this is becoming less common in many countries. From Central Bank Digital Currencies (CBDC) to cryptocurrencies, digital assets and currencies are always in the news.

Impact of COVID on Digital Currency

The Covid-19 pandemic and the increased use of digital payments that has fostered as lockdowns kicked in and customers moved online for most purchases. Creating a digital currency is thus a way for central banks and economies to keep up with the times.

Use of physical cash in transactions has also been on the decline in recent years, a trend that has been exacerbated by the ongoing Covid-19 pandemic. The "reasoning" behind CBDC implementation is to provide the public with virtual currencies that carry the legitimate benefits of private virtual currencies.

On the other hand, "Money does what money does," and cash, like other forms of money, serves as both a means of payment and a store of value. Banknotes sewn into a mattress are most likely kept as a store of value.

CBDCs must ensure that well-functioning capital and credit markets are not disrupted. Another important consideration is liquidity. A good balance of buyers and sellers is required for every asset class to be stable. Issuing a CBDC may necessitate additional monitoring and compliance with anti-money laundering and counter-terrorist financing (AML/CFT) legislation.

Cash-Digital Coexistence

There is a fundamentally symbiotic relationship between the conventional form of money which is cash- bank notes and coins and the new era digital currencies as the former is safe and liquid and the latter is considered to be more efficient and financially inclusive.

Former RBI governor D Subbarao mentioned in a virtual event that the central bank has a strong encouragement to launch a digital currency, and cash will coexist with the new-age currency.

The Reserve Bank of India (RBI) may launch a pilot for India's very own digital currency in December, an innovation that is expected to change how currency is held and used in the future. To be clear, the goal is not to replace physical currency or to replicate cryptocurrencies. These, known as central bank digital currencies (CBDCs), will be similar to the current system, but the underlying structure, which has so far been based on cash usage, will undergo a revolutionary change.

In fact, it is one of the catalysts for central banks around the world to accelerate their digital planning and exploration.

The Value of Cash

However, Cash still remains the preferred mode of payment and for receiving money for regular expenses, according to a pilot survey conducted by the Reserve Bank on retail payment habits of individuals in six cities between December 2018 and January 2019, the results of which were published in the April 2021 RBI Bulletin please see charts below. Cash is most commonly used for small-value transactions under INR 500.

 

Conclusion

The goal behind preserving cash as a payment option is to protect consumer choice, particularly for those who do not have bank accounts or who prefer cash to digital alternatives for budgetary, technical, or other reasons.

While digital money provides customers with a new payment alternative, it also poses some severe hazards, such as cyber threats and the right to privacy. Digital currencies, particularly those offered by private corporations, would almost certainly seek to collect and exploit as much data as possible about users' buying habits. Privacy will still be an issue for a Central Bank digital money, but the dangers should be smaller because the currency would not be built on this assumption.

Relevant to today’s era, one of the primary factor is that a CBDC needs to coexist with cash and other types of money in order to maintain a flexible and innovative payment system in the economy.

Disclaimer: The views expressed in the article above are those of the authors' and do not necessarily represent or reflect the views of this publishing house



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