US President Issues Executive Order Banning Central Bank Digital Currency (CBDC)

US President Issues Executive Order Banning Central Bank Digital Currency (CBDC)

The US President has signed an executive order prohibiting the issuance, circulation, and use of the Central Bank Digital Currency (CBDC), also known as the ‘Digital Dollar,’ within the United States.

About CBDC:

• Definition: A CBDC is the digital form of a country’s sovereign currency, issued by its central bank. Unlike cryptocurrencies, which are decentralized, CBDCs are centrally controlled.

Types of CBDC:

• Wholesale CBDCs: These are used by financial institutions and market participants for large transactions, such as interbank transfers and securities settlements.
• Retail CBDCs: Used by the public, businesses, and retail consumers for everyday transactions. There are two types:
  • Token-based CBDCs: Accessed using private and public keys, allowing for anonymous transactions.
  • Account-based CBDCs: Require digital identification for users to access and manage their accounts.

Features of CBDC:

• CBDCs must be accepted by all citizens, businesses, and government agencies as a medium of payment, legal tender, and a safe store of value.
• Convenience of Use: They are expected to reduce the cost of money issuance and transactions.
• Difference from Existing Money: Unlike traditional money, CBDCs are liabilities of the central bank (e.g., the RBI) rather than commercial banks.

Issues with CBDCs:

• They pose potential risks to financial system stability, could compromise individual privacy and protection, and may present cybersecurity challenges.

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