Digital Currencies and Their Relationship Towards Economic Instability

Digital Currencies and Their Relationship Towards Economic Instability

Naveenraj X. (SRM Institute of Science and Technology, India) and Ramya J. (SRM Institute of Science and Technology, India)
DOI: 10.4018/978-1-6684-5691-0.ch008
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Abstract

The widespread rise in popularity of cryptocurrencies over the past few years has the potential to have sparked new revolutions in the global ecosystem. The investors face both new opportunities and challenges as a result of this ecosystem. The modern era makes it simple for people to make financial decisions regarding investments, payments, and other financial services via the internet. This development in technology makes it easier for inventors to create and process crypto currencies around the world. Decentralization is the fundamental principle of digital currency. Financial regulations and control are virtually non-existent for digital currencies. As a result, investors are increasingly using it as a decentralized financial instrument. Investors can use it to conduct unregulated financial transactions from one location to any location worldwide. Digital currencies also cause financial instability, despite growth and gains. Every nation in the world faces a serious threat as a result of financial instability.
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Introduction

The global interest in Central Bank Digital Currencies, or CBDCs, is now widespread. They have emerged as an essential component of the conversation regarding the digitalization of financial prudence, which includes the rapid shifts in the background of payments and the character of money itself. CBDCs are increasingly being viewed as the succeedingphase in the evolution of (fiat) money - from shells and cowries to coins and paper money and now digital demonstrations of fiat currencies. (Barontini & Holden, 2019) BIS’s 2020 Annual Economic Report. The introduction of CBDCs is being considered by numerous central banks worldwide. Some of them have made significant progress. Digital versions of their respective sovereign currencies have been piloted by Sweden and China, both of which are major advanced economies and major emerging markets and developing economies (EMDEs). The Bahamas became the first nation in the domain to produce a digital currency for retail use from its central bank the “Sand Dollar” in October 2020. The Eastern Caribbean Currency Union was the primary currency amalgamation central bank to issue DCash, a blockchain-based digital variety of the Eastern Caribbean Dollar.

The ramifications of CBDCs generally were briefly discussed in a report from an Inter-Ministerial Committee in India, which included the central bank of India among its members. (Report of the Interministerial Committee, 2019) While noting that the benefits of adopting CBDCs in the context of India were unknown, it nevertheless advised keeping an open mind about doing so in the future. Additionally, the Reserve Bank of India (RBI), the country's central bank, is apparently developing a model for CBDCs and a gradual rollout.(Sankar, 2021). The RBI is also expected to issue an Indian CBDC, or a “digital rupee”, in the financial year 2022-23. (Moneycontrol, 2022). However, there is relatively less information available in public domain about RBI’s detailed thinking on this subject. It is in this background that this chapter scrutinize the outline of bring together a CBDC in India.

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