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CBDC will not affect the reign of cryptocurrencies

 

The Reserve Bank of India (RBI) is the latest central bank to enter the race for an official digital currency. 86 percent of central banks are looking at the possibility of issuing digital currency, and 14 percent have actually started experimental programs. The Vice Chair for Supervision at the US Federal Reserve has made compelling arguments for the benefits of a digital currency issued by the Fed.

Globally, there are two types of private virtual currencies. Stablecoins are issued by the private sector and are linked to an underlying fiat currency such as the US dollar. Stablecoins pose no threat to central banks, and they can coexist with fiat currencies indefinitely. The other set of virtual currencies do not have any underlying asset and attract users due to their novelty and price volatility. The other type of virtual currency has no underlying asset and is popular because of its novelty and price volatility.

A CBDC may not mark the end of the existing crypto asset cohort, but it may signal the arrival of an official digital currency. If the use of CBDCs grows, resulting in a decrease in cash usage, tax evasion will be decreased, and the cost of issuing notes for the central bank will be lowered. Before this happens, the Reserve Bank of India Act, which includes the Coinage Act, FEMA, and other laws, will have to be altered.

However, Cryptocurrency consumers will not switch to central bank digital currencies because they enjoy the anonymity and price volatility that cryptos provide.

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