Coin Flipping Time

AS CENTRAL BANKS LOOK AT DIGITAL CURRENCIES, THIS EMERGING TECHNOLOGY WILL SOON BE HARD TO IGNORE

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he Central Banking Journal, which has leading former central bankers on its editorial advisory board — including former Reserve Bank of India ( RBI) Governor Y.V. Reddy —published a survey on digital currency in its May issue. Sharing the results of the Central Bank Digital Currency (CBDC) Survey, conducted in February, it cautioned that a lot of the attention being given to digital currencies is overdone and that very few central banks plan to issue CBDCs, in any form, within the next five years. But it also said that numerous central banks are “actively evaluating CBDCs, publishing in- depth reports on issues looking at financial stability, financial market infrastructure and macroeconomic implication.”

A large number of central banks, including in India, may not be in a hurry to launch digital currencies, but the fast- evolving ecosystem of technologies around them – and their various uses and benefits – will be hard for countries to ignore in the years to come.

Apart from being issued by central banks, digital currencies can also exist in other forms, not recognised by a central bank and in a somewhat unregulated fashion, in which case these are called virtual currencies. Cryptocurrencies, being largely unregulated, are also virtual currencies, but their defining characteristic is use of cryptography to secure and verify transactions and manage creation of new units. The basis of all digital currencies is distributed ledger technology ( DLT), a database that is synchronised and accessible across geographies by multiple participants. One