Digital money (or digital currency) refers to any means of payment that exists in a purely electronic form. Digital money is not physically tangible like a dollar bill or a coin. It is accounted for and transferred using online systems. Some examples of types of digital money are cryptocurrencies, central bank digital currencies, and stablecoins.
Digital money can also represent fiat currencies, such as dollars or euros. Digital money is exchanged using technologies such as smartphones, credit cards, and online cryptocurrency exchanges. In some cases, it can be converted into physical cash through the use of an ATM.
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Why is 'Digital Money'the Term of the Day?
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Yesterday India launched its pilot central bank digital currency (CBDC), the digital rupee, joining a growing list of countries that are exploring, developing, or testing digital money backed by a central bank. In a statement on Monday, the Reserve Bank of India (RBI) said nine banks would participate in the pilot program, with a retail version of the digital rupee expected to become available within a month.
The U.S. could also soon develop its own CBDC. Back in September, the Biden administration had released a framework recommending the creation of a digital dollar. Some benefits of CBDCs are that they can potentially streamline the process for monetary policy implementation for central banks, in addition to simplifying accounting and record-keeping. CBDCs also have the potential to ease cross-border transfers and reduce transaction costs. A digital dollar would be regulated by the Federal Reserve, as the physical dollar is, with the full faith and backing of the central bank.