In recent years, many nations, including India, have been looking into the possibility of issuing a

digital version of their national currency which is digital Rupee. This has led to a lot of scepticism
about the Central Bank Digital Currency (CBDC). Before proceeding with the issuance of a CBDC, it is
essential to carefully consider the potential risks and obstacles, despite the fact that the concept of a
CBDC has the potential to bring about numerous by giving people who are currently unbanked or
underserved by the traditional banking system access to a digital form of money, a CBDC has the
potential to increase financial inclusion, which is one of its main advantages. Additionally, it has the
potential to speed up and lower the cost of financial transactions. Additionally, the central bank may
be able to carry out monetary policy in a more effective and adaptable manner with the help of a
CBDC. The Reserve Bank of India (RBI) currently employs a variety of strategies to influence the
money supply and accomplish its monetary policy goals, including changes in interest rates and open
market operations.

However, due to their limitations, these tools may not always be able to achieve the desired results.
The RBI might be able to use a wider range of policy tools with a CBDC, like negative interest rates,
which are currently impossible with actual cash.

A CBDC may also have the potential to improve the stability of the financial system by lowering the
risk of bank runs and reducing the reliance on physical cash. The use of cash also presents a
challenge for the central bank in terms of tracking and monitoring the money supply because it is
susceptible to theft and loss. On the other hand, a CBDC might be made to be safer and easier to
track, potentially lowering these dangers.

However, it is essential to keep in mind that the process of issuing a CBDC comes with a number of
challenges and risks. One of the principal concerns is the potential for loss of protection and the
chance of monetary reconnaissance. Concerns regarding personal privacy and civil liberties arise as a
result of the possibility that a CBDC would enable the central bank to track and monitor all financial
transactions.

Cyberattacks and the need for robust cybersecurity measures to safeguard the CBDC from such
threats are another potential risk. The national bank would likewise have to think about the
expected effect on the monetary framework, including the chance of disintermediation and the
possible interruption to the customary financial framework.

A Central Bank Digital Currency (CBDC) is a digital version of a country's fiat currency that is issued
and backed by the central bank. While the issuance of a CBDC has the potential to revolutionize the
way monetary policy is conducted in India and bring numerous benefits, it is important to carefully
consider the potential risks and challenges before moving forward with its issuance. Although it is
digital and can be accessed via digital devices like smartphones or computers, it is intended to
function as a medium of exchange like actual cash.

The way a CBDC is designed and implemented will determine how it affects the Indian economy. The
following are some potential advantages of a CBDC for India:
1. Financial inclusion expanded: Because they would not be required to have a bank account or go
through the process of opening one in order to use a CBDC, this could make it simpler for individuals
who are currently unbanked or underbanked to gain access to financial services.

2. increased effectiveness: Because it would eliminate the need for intermediaries like banks or
payment processors, a CBDC could potentially cut down on both the amount of money spent and
the amount of time needed to complete financial transactions.

3. Stability enhancement: Due to the fact that it would be backed by the central bank, a CBDC
could be more stable than some other digital payment options and provide an alternative to physical
cash, which can be stolen or lost.

4. monetary policy reform: The central bank might be able to effectively implement monetary
policy thanks to a CBDC, which would give it more control over the money supply.

The implementation of a CBDC would also come with a number of difficulties, including some risks. It
could, for instance, cause disruptions to the conventional banking industry and raise privacy and
security concerns. Before implementing a CBDC, the central bank must also carefully consider the
potential impact on financial stability and the economy as a whole.