Central Bank Digital Currency (CBDC) is a digital counterpart of government-backed fiat money. This kind of digital currency is connected to the nation's currency and issued by its central bank. The same would be the case with the ‘digital rupee’ in India as it will be backed by the central bank of India, i.e. RBI. The development of CBDCs is underway in more than 100 nations across the world, and it is in various phases. Some countries have already released their digital currencies, while some have abandoned or stopped working on their initiatives. Despite being strongly inspired by bitcoins, the idea of CBDCs differs from decentralised virtual currencies and crypto assets, which are not issued by the government and do not have the status of "legal tender." With the rising demand for cryptocurrencies, there is a rise in the government's concerns about the risks associated with the same and its tendency to facilitate money laundering and other forms of criminal financing, and thus the concept of CBDC is gaining momentum. Even though the RBI supports the growth of virtual and online currencies, it does not support ones like bitcoin because it is impossible to monitor their end-use. It is preferred to introduce CBDC in order to track end-to-end virtual currency usage. The article sheds light on what digital currency is, how it differs from cryptocurrencies, why it has had such a surge in popularity recently, as well as the problems and risks that come with using it.
