Central Bank Digital Currency (CBDC) vs Digital Money

Under the Government of India's digital india programme several digital modes of payments are introduced, but every time when a new mode of payment is introduced, confusion of its difference with the previous one also arises. Nowadays a new digital currency is introduced by the central bank of India known as CBDC, it is a legal digital currency which can be used as a medium of exchange. Now the question arises how is CBDC different from digital money. Let's take a look on key differences between CBDC and Digital money.

What is CBDC?

The Reserve Bank of India has issued CBDC, also known as Central Bank Digital Currency, as legal money. It is a digital record or token of nations currency which can be used as a medium of exchange. In the central bank's balance sheet, it appears as a liability. According to the RBI, digital currency can make payment systems efficient. Several countries are developing CBDC.

Advantages of CBDC

• CBDCs make the implementation of monetary and fiscal policy easier.
• It is accepted as a medium of exchange, value of store all over the country.
• It can be converted into commercial bank money and cash.
• Dependency on cash will be reduced
• Cost of transaction will be less
• Each unit is uniquely identifiable to prevent currency fraud, much like with paper money.
• It is a sort of digital payment instrument that may be used with all kinds of digital payment services and systems to store, transfer, and send payments.

What is digital money?

Digital money also known as digital currency is a kind of payment made electronically (an electronic mode of payment) that is not physically tangible and can be accounted, transferred through online systems. Digital money can be exchanged through mobile phones, credit cards etc.

Advantages of Digital Money-

• Digital money is not physically tangible so it reduces the use of carrying physical cash.
• Record keeping of the transaction became easier.
• Quick and easy transfer of money across the world.
• Reduced the cost of cross border transfers.

Difference between CBDC and digital money

• CBDC is a liability of central bank not the commercial banks
• CBDC will not require to travel through various banks, it can operate seamlessly whereas digital money transactions are passed through various banks.
• CBDC provide people without bank accounts a digital way to transfer money which is not possible with digital money.