UPI is a cashless electronic mode of money transfer. It, however, transfers fiat money. Instead, one can transfer digital currency issued by the RBI. Here there is no need for settlement, as the transfer is secure, without any third-party risks. A central bank digital currency (CBDC) internationalises the payment system. It is a legal tender issued by the central bank in digital form, and is similar to fiat currency. It is exchangeable with fiat currency one to one. It is in digital form – that’s all.

However, why to have CBDC in an economy where cash is widely used? Cash does need distribution and printing. It involves heavy cost.

Cryptos appeared at the end of the first decade of this millennium. However, privately issued cryptos threaten state control over money.

CBDC is combination of cryptography and decentralised ledger technology. The underlying technology of CBDC and private cryptos remains the same, but they are different. Cryptos are not for transactions. They are treated as assets which would appreciate. Fiat currency, instead of appreciating, depreciates on account of over-supply. CBDC is a currency and not an asset.

CBDC wallets can be maintained directly by the central banks, rather than by the commercial banks. It affects the role of commercial banks as custodians of money. It also constrains the role of banks in creating bank money or cash credit.