With reference to Central Bank digital currencies, consider the following statements : 1. It is possible to make payments in a digital currency without using US dollar or SWIFT system. 2. A digital currency can be distributed with a condition programmed into it such as a timeframe for spending it. Which of the statements given above is/are correct?
- (a) 1 only
- (b) 2 only
- (c) Both 1 and 2 ✓ UPSC's answer
- (d) Neither 1 nor 2
Why the answer is (c)
• A central bank digital currency (CBDC) is a digital form of a country's sovereign currency issued directly by its central bank.
• Statement 1 is correct: cross-border CBDC arrangements (such as the BIS 'mBridge' project linking China, Hong Kong, Thailand and the UAE) allow direct settlement between currencies without routing through the US dollar or the SWIFT messaging network.
• Statement 2 is correct: because a CBDC is programmable, it can carry conditions — for example, a subsidy that must be spent within a set time or only on specified goods; China has trialled expiring e-CNY vouchers and India has piloted purpose-bound e₹.
• Hence both 1 and 2, option (c).
Why the other options are wrong
- (a) 1 only
- Statement 2 is also correct: CBDCs can be programmed with spending conditions.
- (b) 2 only
- Statement 1 is also correct: CBDC settlements can bypass the dollar and SWIFT.
- (d) Neither 1 nor 2
- Both statements are correct.
Asked in the GS Paper I of the UPSC Civil Services Preliminary Examination 2023, held on 28 May 2023. Question and answer key: Union Public Service Commission. Explanation: UPSC Answer Check.