Impact of Central Bank's Digital Currency on Indian Economy - Assessment Answer

Introduction

Problem Statement

The new digital currency that will be issued by the RBI will be recognized as legal cash, will be backed by the central government, and will perform all of the functions that paper money does. The use of the Digital Rupee as a form of currency is anticipated to facilitate transactions that are less time-consuming, more efficient, and less costly ((Söilen & Benhayoun, 2021).

India is a developing nation that is experiencing significant economic difficulties. It is challenging to educate people in rural areas about the implications of digitalization because rural areas are home to around 70 percent of the country's population. India is growing better at a lot of things, such as using the internet, but the largest tasks are to teach them about money and encourage them to utilize the internet in the proper way, which will help them be more productive and bring value to the economy (Bordo, 2021). 

Research Aims and Questions

The research questions are as follows:-

• What is the role of central bank digital currency?
• What is the impact of central bank digital currency on Indian Economy?
• What recommendations can be given regarding CBCS?

Research Objectives

The research objectives are as follows:-

• To understand the role of central bank digital currency
• To evaluate the impact of central bank digital currency on Indian Economy
• To provide recommendations for future outcomes

Literature Review

Review of Recent Research

CBDC will be distinct from other digital assets despite the fact that it will be supported by distributed ledger technology. The nation's central bank will be in charge of determining who can use the blockchain. Its sole purpose will be to determine the total amount of CBDC that will be produced as well as its worth. Money that is created digitally will be more effective and will not have the issues that are associated with private money. The CBDC payment will be the final one, and it will eliminate the risk of settlement in the financial system, particularly with regard to interbank payouts. The CBDC will become the central location for the storage and transfer of wealth between different companies and institutions. It will make it easier to move money around while also lowering the cost of doing financial operations. In the existing system of digital payments, the transfer of funds from one bank or account to another takes place through a channel, which incurs additional fees. Crypto currencies are the most secure method of payment currently available everywhere in the globe. In order to break into a blockchain network, quantum computing is required, and the RBI has taken precautions to ensure that even this is impossible. Even if digital cash is stolen, the person responsible for the theft can be identified. To properly keep track of the money given from one person to another on a regular basis, the process must be carried out manually. Even if a company use computerized accounting systems, the entries must still be keyed in by hand. There is a possibility of making errors while using manual entry, and errors in accounting can lead to significant monetary issues for a company. Manual entry is one of the methods that can be used (Söilen & Benhayoun, 2021).

The current payments system has flaws that have become more obvious in light of the proliferation of electronic payment methods and innovative concepts in the financial industry. Since 2008, when Bitcoin and other cryptocurrencies were first introduced to the market, the function of central banks has been brought into doubt.In addition, those who are in control of the economy in every region of the world are of the opinion that the Central Bank is the reason why people have faith in the monetary system as a whole. According to a research conducted by the Bank for International Settlements, the percentage of central banks around the world that wish to come up with a CBDC has increased from approximately 60% in 2017 to 80% in 2019.The purpose of this article is to investigate what the implications of CBDC are for the Indian financial system (Bordo, 2021). 

Theories

Economic Growth Theory

The rapid development of digital technology in India may largely be attributed to the country's consumers. These are some of the factors that contributed to the increase. The rapid development of digital technology in India may largely be attributed to the country's consumers. These are some of the factors that contributed to the increase. The manufacturing industry has been on the rise and has been a contributor to the overall increase in productivity. This has not yet taken place on a significant scale in India, mostly due to the slow pace at which automation and digitization are being implemented. Because there are so many people in India, if this issue were to be resolved, the country's manufacturing sector would have an extremely promising future (Ozili, 2023).

Arauz (2021) argues that it would also show higher increase in job opportunities than other industries, and it would have a significant effect on the economy of India. The micro, small, and medium enterprise sector is a highly important portion of India's economy. It has a hard time acquiring capital and staying current with advances in technology, but it is nevertheless able to accomplish so. The industrial industry is struggling with CAPEX in this day and age of Industry 4.0 and the march toward the complete and total digitalization of everything. Agriculture is one of the industries that has been able to adjust to changing conditions and display the effects of those changes in its expansion. How people's shift toward using their smartphones in different ways has changed digital operations and led to an increase in transparency and accountability inside the financial system. The proper implementation of digitalization has the potential to transform the functioning of the Indian economy and propel the country toward the position of third largest economy in the world (Bordo, 2021). 

Conceptual Framework

Figure 1: Conceptual Framework

(Source: Self-created)

Scope of study

Methodology and Research Design

For the given study, deductive approach will be selected. It is feasible to provide an explanation of the deductive method using hypotheses that are based on the assertions of that method. Deductive reasoning is a method of inferring an outcome from an initial set of premises or hypotheses. In order to arrive at a conclusion by deductive reasoning, one must first make an assumption about a pattern in the evidence. In contrast, induction attempts to build a universal law by working backwards from observed facts (Bag, & Omrane, 2022).

Data Collection and Sampling

Primary and secondary sources will be analyzed to choose which data to use. The researcher will use survey analysis to assess our primary data, and theme analysis to sift through the secondary data.

Data Analysis Techniques

MS Excel will be used to figure out from the key findings from the primary data analysis. The analysis will be shown with the help of graphs and tables that show what was learned from the analysis of the original data.

References

Arauz, A. (2021). The International Hierarchy of Money in Cross-Border Payment Systems: Developing Countries’ Regulation for Central Bank Digital Currencies and Facebook’s Stablecoin. International Journal of Political Economy, 50(3), 226-243.

Bhowmik, D. (2022). Monetary policy implications of central bank digital currency with special reference to india. Asia-Pacific Journal of Management and Technology (AJMT), 2(3), 1-8.

Bordo, M. D. (2021). Central bank digital currency in historical perspective: Another crossroad in monetary history (No. w29171). National Bureau of Economic Research.

Lee, D. K. C., Yan, L., & Wang, Y. (2021). A global perspective on central bank digital currency. China Economic Journal, 14(1), 52-66.

Ozili, P. K. (2023). Central bank digital currency research around the World: a review of literature. Journal of Money Laundering Control, 26(2), 215-226.

Priyadarshini, D., & Kar, S. (2021). Central bank digital currency (CBDC): critical issues and the Indian perspective. New Dehli: Dehli University Enclave, Sep.

Söilen, K. S., & Benhayoun, L. (2021). Household acceptance of central bank digital currency: the role of institutional trust. International Journal of Bank Marketing, 40(1), 172-196.

Ward, O., & Rochemont, S. (2019). Understanding central bank digital currencies (CBDC). Institute and Faculty of Actuaries, 1-52.

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