There are projects such as those of Bank of China and Facebook to issue digital currency. Bank of China aims at internationalising the Yuan and reduce its dependence on global dollar payment system. Facebook proposes to introduce Libra which would be backed by a mixture of major currencies and government debt. This plan has been tweaked and now Facebook proposes to launch several ‘stablecoins’ backed by individual currencies.

The core features the Central Banks and the Bank for International Settlements (BIS) expect in digital currency are:

o resilience

o availability at low or no cost

o appropriate standards and clear legal framework

o key role for the private sector.

A team of seven central banks viz. US Federal Reserve, Bank of England, European Central Bank, Swiss National Bank, Bank of Japan, Bank of Canada, and Sveriges Riksbank (Sweden) which will be coordinated by BIS have set out on a digital currency.

A central bank digital currency (CBDC) is the electronic equivalent of cash. It gives the holder a direct claim on the central bank (just like fiat currency). It bypasses commercial banks and offers a higher level of security, as a central bank cannot run out of the currency it issues.

It is a better alternative to private solutions in lieu of cash. The fear is that private currencies, such as Libra and Bitcoin if widely adopted, amounts to losing control. There are issues of money-laundering and terror financing. It may loosen the central bank’s grip.

A CBDC can assume the form of a token on a physical device, say a smart phone or pre-paid card. It is easier to transfer it offline and anonymously.

Alternatively, it can exist in accounts managed by an intermediary, say a bank. This ensures monitoring. It can remunerate it with an interest rate.