What is a Central Bank Digital Currency that RBI is planning to launch?

The Central government recently announced that it has planned to move a Bill regulating private cryptocurrency in India during the upcoming winter session of the Parliament. While the government plans to ban a few digital coins, it also plans to introduce an official digital currency.

The Cryptocurrency and Regulation of Official Digital Currency Bill, 2021, will aim to regulate the cryptocurrencies in the country. The Reserve Bank of India is expected to issue the central bank digital currency (CBDC) that will be regulated by the central bank. The RBI is expected to use the blockchain technology of cryptocurrency to issue digital currency.

What is a Central Bank Digital Currency?

Central Bank Digital Currency or CBDC will be much more stable than cryptocurrencies. 

As per the Reserve Bank of India, a Central Bank Digital Currency (CBDC) is the legal tender issued by a central bank in a digital form.

It is the same as a fiat currency and is exchangeable one-to-one with the fiat currency. Only CBDC's form is different.

CBDC is a digital or virtual currency but it is not comparable to the private virtual currencies that have mushroomed over the last decade. 

The major difference between a CBDC and a cryptocurrency is that the former is regulated by states while the latter is decentralised. 

Private virtual currencies are not commodities or claims on commodities as they have no intrinsic value and are different from money.

Central Bank Digital Currency would be something that supports the banking system or compliments the existing frameworks in place.