Money is an important financial instrument, which fulfils the basic functions as a medium of exchange, unit of account, store of value, and standard of deferred payment. The function as a medium of exchange allows efficient transactions of goods and services among people without forming an inconvenient barter system. The unit of account enables the value of all goods and services to be expressed in common criteria, thereby smoothening the comparison of goods and services and facilitating their transactions. The store of value refers to any asset whose value can also be used in the future because of the ability to maintain its value, thereby enabling people to save to finance their spending at a later date. In addition to these three basic functions, the function as a standard of deferred payment is regarded as an additional important function of money since it enables it to express the value of debt so that people can purchase goods and services today by paying back debt in the future. To meet these four requirements, money must be durable, portable, divisible, and difficult to counterfeit. Though most people refer to ‘Money’ as ‘currency’ but there is a slight difference between the two. Currency is a form of money that is issued exclusively by the government / central bank as a legal tender, which is usually in paper / plastic form. It is the liability of the issuing central bank (and sovereign) and an asset of the holding public. On the other hand, money has intrinsic value. When money does not have intrinsic value, it must represent title to commodities that have intrinsic value or title to other debt instruments.
2. Recent developments in digital currencies in India
The Covid-19 pandemic has accelerated the migration to contactless transactions and highlighted the importance of access to safe, timely, and low-cost payments. The central banks across the globe are studying these developments and exploring ways and means of meeting the demands raised on them as a core payment services provider and as the issuing authority for currency. Interest and investment in blockchain technology and cryptocurrency have been growing exponentially. The cryptocurrency market has constantly been evolving, and there have been a lot of developments since then. In the present day, it has been observed that the use of cash is slowly declining both in the domestic and global markets with an increase in and availability of low-cost payment infrastructure like UPI, QR Code etc. Further, the rise in the number of cryptocurrencies and their growth both in terms of volume and value are challenging the current central banks’ monopoly in money issuance. As per information available in the public domain, there are over 6000 cryptocurrencies with crypto assets valued at over two trillion US dollars. This has led to many leading central banks’ contemplating launching their own versions of digital currencies. Developments like the growing role of digital private money in major economies, post-pandemic migration to digital payment systems, plans for the use of digital money in cross-border transactions and concerns about financial exclusion are forcing central banks across geographies to think positively about the introduction of CBDCs.
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