53
Question 53
Consider the following statements in respect
of the digital rupee :
1. It is a sovereign currency issued by the Reserve Bank of India (RBI) in alignment with its monetary policy.
2. It appears as a liability on the RBI's balance sheet.
3. It is insured against inflation by its very design.
4. It is freely convertible against commercial bank money and cash.
Which of the statements given above are correct?
1. It is a sovereign currency issued by the Reserve Bank of India (RBI) in alignment with its monetary policy.
2. It appears as a liability on the RBI's balance sheet.
3. It is insured against inflation by its very design.
4. It is freely convertible against commercial bank money and cash.
Which of the statements given above are correct?
AOptions
A
A) 1 and 2 only
B
B) 1 and 3 only
C
C) 2 and 4 only
D
D) 1, 2 and 4
BSolution
Let's analyze each statement regarding the Digital Rupee (eā¹), India's Central Bank Digital Currency (CBDC):
1. Statement 1 is correct. The Digital Rupee is indeed a sovereign currency issued by the RBI, and its issuance is a part of the RBI's monetary policy framework, aiming to provide a digital form of fiat currency.
2. Statement 2 is correct. Like physical currency, the Digital Rupee issued by the central bank represents a liability for the RBI. It is a direct claim on the central bank, just like banknotes. Therefore, it appears on the liability side of the RBI's balance sheet.
3. Statement 3 is incorrect. No currency, digital or physical, is inherently 'insured against inflation by its very design'. Inflation is a macroeconomic phenomenon reflecting the decrease in the purchasing power of money over time. While a CBDC might offer efficiency gains or new monetary policy tools, it does not, by its design, prevent or insure against inflation. Its value would still be subject to market forces and the overall economic conditions that drive inflation.
4. Statement 4 is correct. The Digital Rupee is designed to be fully interchangeable and convertible with commercial bank money (deposits) and physical cash. This interoperability is crucial for its adoption and seamless integration into the existing financial system.
Therefore, statements 1, 2, and 4 are correct.
1. Statement 1 is correct. The Digital Rupee is indeed a sovereign currency issued by the RBI, and its issuance is a part of the RBI's monetary policy framework, aiming to provide a digital form of fiat currency.
2. Statement 2 is correct. Like physical currency, the Digital Rupee issued by the central bank represents a liability for the RBI. It is a direct claim on the central bank, just like banknotes. Therefore, it appears on the liability side of the RBI's balance sheet.
3. Statement 3 is incorrect. No currency, digital or physical, is inherently 'insured against inflation by its very design'. Inflation is a macroeconomic phenomenon reflecting the decrease in the purchasing power of money over time. While a CBDC might offer efficiency gains or new monetary policy tools, it does not, by its design, prevent or insure against inflation. Its value would still be subject to market forces and the overall economic conditions that drive inflation.
4. Statement 4 is correct. The Digital Rupee is designed to be fully interchangeable and convertible with commercial bank money (deposits) and physical cash. This interoperability is crucial for its adoption and seamless integration into the existing financial system.
Therefore, statements 1, 2, and 4 are correct.
CStrategy
For questions on new financial technologies like CBDCs, focus on their fundamental nature (sovereign currency, central bank liability) and practical implications (convertibility). Be skeptical of strong claims like 'insured against inflation', as currency value is subject to broader economic forces.
DSyllabus Analysis
Economy: Banking and Finance (Central Bank Digital Currency, Monetary Policy, RBI Functions), Financial Technology.
EQuestion Analysis
This is a current affairs and conceptual question from Economics, specifically on the Digital Rupee (India's CBDC). Statements 1, 2, and 4 align with the stated objectives and design of CBDCs globally. Statement 3 is a clear distractor, as no currency can be designed to be immune to inflation. Medium difficulty.