UPSC Prelims 2023 Q72: Indian Economy – Digital Payments & Financial Inclusion
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 time - frame
for spending it.
Which of the statements given above is/are correct?
- (a) 1 only
- (b) 2 only
- (c) Both 1 and 2
- (d) Neither 1 nor 2
Answer: (c) Both 1 and 2
Explanation
Central Bank Digital Currencies (CBDCs)
| Statement | Claim | Verdict | Detail |
|---|---|---|---|
| 1 | CBDC payments possible without US dollar or SWIFT | TRUE | CBDCs enable direct bilateral digital payments between countries using their own currencies. No SWIFT intermediary needed — payment rails are on the issuing central bank's digital infrastructure. India's Digital Rupee (e₹) can transact directly with other CBDC systems. |
| 2 | Digital currency can have programmed conditions (e.g., time-frame for spending) | TRUE | Programmable money is a defining feature of digital currencies. Smart contracts can encode conditions: a government grant CBDC disbursed for pandemic relief could be programmed to expire if not spent within 3 months — preventing hoarding and ensuring stimulus effect. |
Both statements are correct.
Answer: (c) Both 1 and 2.
Why each option is right or wrong
- (a) Incorrect. Statement 1 alone — Statement 2 about programmability is also a well-established CBDC feature.
- (b) Incorrect. Statement 2 alone — bypassing SWIFT through CBDC bilateral payment is a primary motivation for CBDC development by multiple countries.
- (c) CORRECT. Both statements are correct: CBDCs enable non-SWIFT transactions and can carry programmable spending conditions.
- (d) Incorrect. 'Neither' — both CBDC capabilities described are documented and actively developed by central banks globally.
Key point
CBDC: (1) Bypasses SWIFT + USD for bilateral payments ✓. (2) Programmable money (conditions/expiry dates) ✓. Both correct. India's e₹ (Digital Rupee) launched by RBI in 2022–23.
Remember
Central Bank Digital Currencies can facilitate payments without using the US dollar or the SWIFT system, and can be programmed with conditions such as spending time-frames. Both statements about CBDCs are correct.
Common mistakes
- Doubting CBDC's ability to bypass SWIFT — this is precisely why countries like China, Russia, and India are developing CBDCs; to reduce dollar/SWIFT dependence.
- Thinking programmable money is science fiction — China's e-CNY has already been tested with expiry conditions for pandemic stimulus payments.
- Confusing CBDC with cryptocurrency — CBDCs are government-issued, centrally controlled digital versions of national currency, not decentralised crypto.
Exam tip
CBDC = government-backed digital currency. Key features: (1) De-dollarisation/SWIFT alternative. (2) Programmable (expiry, purpose-locking). (3) Real-time settlement. India's e₹ is an active CBDC. China's e-CNY is the most advanced globally.
Sources
- RBI — Report on Central Bank Digital Currency
- BIS — Central Bank Digital Currencies: Fundamentals