With reference to Central Bank digital currencies, consider the following statements:
1. It is possible to make payments in a digital currency without using US dollar or SWIFT system.
2. A digital currency can be distributed with a condition programmed into it such as a time- frame for spending it.
Which of the statements given above is/are correct?
(a) 1 only
(b) 2 only
(c) Both 1 and 2
(d) Neither 1 nor 2
Answer: C
The answer is (c).
Central bank digital currencies (CBDCs) are digital versions of fiat currencies that are issued and regulated by central banks. CBDCs can be used to make payments without the need for a third party, such as a bank or a payment processor. This means that CBDCs can be used to make international payments without the need for the US dollar or SWIFT system.
CBDCs can also be programmed with conditions, such as a time frame for spending. This could be used to encourage people to spend their money within a certain period of time, or to prevent people from spending money on certain items.
For example, a government could issue a CBDC that can only be used to purchase goods and services from domestic businesses. This would help to support the local economy and reduce the amount of money that is spent on imports.
CBDCs are still in the early stages of development, but they have the potential to revolutionize the way that we make payments. They could make it easier and cheaper to make international payments, and they could also be used to target economic policy more effectively.
Here are some additional details about the two statements:
- Statement 1: It is possible to make payments in a digital currency without using US dollar or SWIFT system.
This is correct because CBDCs are digital currencies that are issued and regulated by central banks. This means that they are not subject to the same restrictions as traditional currencies, such as the US dollar. CBDCs can be used to make payments directly between two parties, without the need for a third party, such as a bank or a payment processor. This makes it possible to make international payments without the need for the US dollar or SWIFT system.
- Statement 2: A digital currency can be distributed with a condition programmed into it such as a time- frame for spending it.
This is also correct because CBDCs can be programmed with conditions. This could be used to encourage people to spend their money within a certain period of time, or to prevent people from spending money on certain items. For example, a government could issue a CBDC that can only be used to purchase goods and services from domestic businesses. This would help to support the local economy and reduce the amount of money that is spent on imports.
Overall, both statements 1 and 2 are correct. CBDCs have the potential to revolutionize the way that we make payments. They could make it easier and cheaper to make international payments, and they could also be used to target economic policy more effectively.
