Daily Current Affairs : 12-November-2024

The European Central Bank (ECB) and the Reserve Bank of India (RBI) have both introduced their respective Central Bank Digital Currencies (CBDCs), marking a significant step toward transforming global payment systems. While the Digital Euro aims to enhance digital payments in the Eurozone, India’s e₹ focuses on improving financial inclusion and simplifying transactions.

What is the Digital Euro?

The Digital Euro is a central bank digital currency issued directly by the ECB. Unlike traditional payments, it allows for digital transactions without intermediaries like banks or payment gateways. This CBDC is designed to revolutionize the way payments are made in Europe.

  • Launch and Objectives: The preparation phase for the Digital Euro began in November 2023. One of its key goals is to replace cashless payment systems and reduce Europe’s dependency on financial service providers from outside the EU.
  • Key Features:
    • Facilitates direct payments through digital wallets.
    • Supports both online and offline transactions, ensuring anonymity in offline payments.
    • Allows for cost-effective micropayments by bypassing traditional payment service providers.
    • Strengthens European sovereignty in digital payments, reducing reliance on foreign financial entities.

India’s Digital Currency (e₹)

India launched its own CBDC, the e₹ (Digital Rupee), under the RBI in 2022. This initiative is aimed at modernizing India’s payment systems while addressing issues like financial inclusion and cost efficiency.

  • Key Features:
    • Legal tender backed by the RBI and exchangeable 1:1 with physical currency.
    • Utilizes blockchain-based wallets for secure, efficient transactions.
    • Reduces the costs of handling, transporting, and phasing out physical currency.
  • Significance:
    • Offers a regulated alternative to cryptocurrencies, reducing associated risks.
    • Simplifies cross-border payments, making transactions faster and more efficient.
    • Promotes financial inclusion by enabling digital transactions for those without access to traditional banking.

Important Points:

Digital Euro:

  • A Central Bank Digital Currency (CBDC) issued by the European Central Bank (ECB).
  • Aimed at revolutionizing payment systems in the Eurozone by reducing reliance on banks and non-EU financial providers.
  • Launch: Preparation began in November 2023 to replace cashless payment systems.
  • Key Features:
    • Facilitates direct payments through digital wallets.
    • Supports both online and offline transactions (offline transactions offer anonymity).
    • Enables cost-effective micropayments by bypassing traditional service providers.
    • Strengthens European sovereignty in digital payments, reducing dependence on foreign financial entities.

India’s Digital Currency (e₹):

  • Launched by the Reserve Bank of India (RBI) in 2022 as a Central Bank Digital Currency (CBDC).
  • Key Features:
    • Legal tender, exchangeable 1:1 with physical currency.
    • Operates through blockchain-based wallets for secure, seamless transactions.
    • Reduces costs related to handling and transporting physical currency.
  • Significance:
    • Offers a regulated alternative to cryptocurrencies, mitigating associated risks.
    • Simplifies cross-border payments, improving transaction efficiency.
    • Boosts financial inclusion by enabling digital transactions for the unbanked.

Why In News

The European Central Bank (ECB) has introduced the Digital Euro as a central bank digital currency (CBDC), aiming to revolutionize payment systems by providing a secure, efficient, and sovereign alternative to traditional digital transactions, while also reducing dependence on non-EU financial providers.

MCQs about The Digital Euro and India’s Digital Currency

  1. What is the primary goal of the Digital Euro introduced by the European Central Bank (ECB)?
    A. To increase the reliance on non-EU financial service providers
    B. To replace physical currency entirely
    C. To revolutionize payment systems by offering a sovereign, digital alternative
    D. To provide a platform for cryptocurrency trading
    Correct Answer: C. To revolutionize payment systems by offering a sovereign, digital alternative
    Explanation: The Digital Euro aims to revolutionize payment systems in the Eurozone by providing a secure, efficient, and sovereign alternative to traditional payment methods, reducing reliance on non-EU financial providers.
  2. Which of the following is a key feature of India’s Digital Currency, e₹ (Digital Rupee)?
    A. It is backed by cryptocurrency reserves
    B. It operates exclusively through physical wallets
    C. It reduces costs related to handling and transporting physical currency
    D. It is not exchangeable with physical currency
    Correct Answer: C. It reduces costs related to handling and transporting physical currency
    Explanation: One of the key features of the e₹ is that it helps reduce the costs associated with handling, transporting, and phasing out physical currency, making digital transactions more efficient.
  3. Which of the following statements about the Digital Euro is correct?
    A. It can only be used for online payments
    B. It ensures anonymity only for online payments
    C. It allows both online and offline transactions, with offline transactions maintaining anonymity
    D. It is only available for EU residents
    Correct Answer: C. It allows both online and offline transactions, with offline transactions maintaining anonymity
    Explanation: The Digital Euro allows for both online and offline transactions, with the added benefit that offline transactions can be made anonymously, ensuring privacy.
  4. How does India’s e₹ (Digital Rupee) contribute to financial inclusion?
    A. By enabling cross-border payments
    B. By enabling digital transactions for the unbanked
    C. By eliminating the use of traditional banking systems
    D. By offering interest on digital currency balances
    Correct Answer: B. By enabling digital transactions for the unbanked
    Explanation: One of the significant benefits of India’s e₹ is that it promotes financial inclusion by allowing people who are unbanked or without access to traditional banking services to participate in digital transactions.

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