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UPSC Notes

Central Bank Digital Currencies (CBDCs)

PYQs

8

Articles

1

Momentum

21

Phase IFoundation

Background

Overview

CBDCs represent a significant innovation in monetary policy and financial technology, with implications for financial inclusion, payment systems, economic stability, and international finance. India's own e-rupee project and its role in global CBDC discussions make it highly relevant for UPSC.

A Central Bank Digital Currency (CBDC) is a digital form of a country's fiat currency, issued and backed by the central bank. Unlike decentralized cryptocurrencies, it is centralized and aims to complement existing forms of money, offering a secure and efficient digital payment option.

Phase IIStatic core

Facts & tables

Key facts

Types of CBDCs

Retail CBDCs are for public use, while Wholesale CBDCs are designed for interbank settlement and financial institutions, often for cross-border transactions.

Issuance and Backing

CBDCs are issued and regulated by the central bank, making them sovereign money and a direct liability of the central bank.

Cross-border Application

Wholesale CBDCs can be exchanged on common platforms (e.g., mBridge, Project Nexus) to facilitate faster, cheaper, and risk-reduced international settlements.

Benefits for Payments

Offers reduced settlement risk (Delivery versus Payment), lower transaction costs, increased speed, and enhanced efficiency in payment systems.

Reference table

Static syllabus anchors

TypeReference
Conceptual areaDigital Financial Infrastructure

Reference table

Institutions & roles

BodyRole
Reserve Bank of India (RBI)Exploring, piloting, and implementing india's own cbdc (e-rupee)
Bank for International Settlements (BIS)Conducts research and facilitates international collaboration on cbdc projects (e.g., project nexus, mbridge)
People's Bank of ChinaActively involved in the development and pilot of its digital yuan and the mbridge project
Phase IIIExam lens

Prelims angle

Overview

Prelims angle: Multi-statement analysis

Prelims angle: Conceptual understanding

Quick revision

  • CBDCs are digital fiat currencies issued by central banks, distinct from cryptocurrencies.
  • Wholesale CBDCs are primarily for interbank settlement, retail CBDCs for public use.
  • Benefits for cross-border payments: faster, cheaper, reduced settlement risk (DvP).
  • Examples of cross-border CBDC initiatives include mBridge and Project Nexus.
  • India proposes linking CBDCs for trade and tourism payments to cut transaction costs.

High-confidence PYQs

2026Multi-statement analysis, Conceptual understanding

Which one of the following statements about Unified Payments Interface (UPI) and Central Bank Digital Currency (Digital Rupee) is **not** correct?

EconomyOpen question
2024Statement-based questions, Conceptual understanding

Consider the following statements in respect of the digital rupee : 1. It is a sovereign currency issued by the Reserve Bank of India (RBI) in alignment wit...

EconomyOpen question
2023Multi-statement analysis, Conceptual understanding

With reference to Central Bank digital currencies, consider the following statements : 1. It is possible to make payments in a digital currency without using...

EconomyOpen question
2019Multi-statement analysis, Institutional roles and functions

Consider the following statements: The Reserve Bank of India’s recent directives relating to ‘Storage of Payment System Data’, popularly known as data diktat...

EconomyOpen question
2018Statement-based questions, Conceptual understanding

With reference to digital payments, consider the following statements: 1. BHIM app allows the user to transfer money to anyone with a UPI-enabled bank accoun...

EconomyOpen question
2016Conceptual understanding, Multi-statement analysis

The term ‘Core Banking Solution’ is sometimes seen in the news. Which of the following statements best describes/describe this term? 1. It is networking of a...

EconomyOpen question

With reference to ‘Bitcoins’ sometimes seen in the news, which of the following statements is/are correct? 1. Bitcoins are tracked by the Central Banks of ...

Science & TechnologyOpen question

The establishment of “Payment Banks’ is being allowed in India to promote Financial Inclusion. Which of the following statements is/are correct in this conte...

EconomyOpen question
2016Multi-statement analysis, Factual recall

The term ‘Core Banking Solution’ is sometimes seen in the news. Which of the following statements best describes/describe this term? 1. It is networking of a...

EconomyOpen question

With reference to ‘Bitcoins’ sometimes seen in the news, which of the following statements is/are correct? 1. Bitcoins are tracked by the Central Banks of ...

Science & TechnologyOpen question

The establishment of “Payment Banks’ is being allowed in India to promote Financial Inclusion. Which of the following statements is/are correct in this conte...

EconomyOpen question
2016Definition-based questions, Terminology-based question

The term ‘Core Banking Solution’ is sometimes seen in the news. Which of the following statements best describes/describe this term? 1. It is networking of a...

EconomyOpen question

With reference to ‘Bitcoins’ sometimes seen in the news, which of the following statements is/are correct? 1. Bitcoins are tracked by the Central Banks of ...

Science & TechnologyOpen question

The establishment of “Payment Banks’ is being allowed in India to promote Financial Inclusion. Which of the following statements is/are correct in this conte...

EconomyOpen question

Topic timeline

Digital Financial Infrastructure
Prelims 2016· Conceptual understanding, Multi-statement analysis

The term ‘Core Banking Solution’ is sometimes seen in the news. Which of the following statements best describes/describe this term? 1. It is networking of a...

Open question

With reference to ‘Bitcoins’ sometimes seen in the news, which of the following statements is/are correct? 1. Bitcoins are tracked by the Central Banks of ...

Open question

The establishment of “Payment Banks’ is being allowed in India to promote Financial Inclusion. Which of the following statements is/are correct in this conte...

Open question
Prelims 2016· Multi-statement analysis, Factual recall

The term ‘Core Banking Solution’ is sometimes seen in the news. Which of the following statements best describes/describe this term? 1. It is networking of a...

Open question

With reference to ‘Bitcoins’ sometimes seen in the news, which of the following statements is/are correct? 1. Bitcoins are tracked by the Central Banks of ...

Open question

The establishment of “Payment Banks’ is being allowed in India to promote Financial Inclusion. Which of the following statements is/are correct in this conte...

Open question
Prelims 2016· Definition-based questions, Terminology-based question

The term ‘Core Banking Solution’ is sometimes seen in the news. Which of the following statements best describes/describe this term? 1. It is networking of a...

Open question

With reference to ‘Bitcoins’ sometimes seen in the news, which of the following statements is/are correct? 1. Bitcoins are tracked by the Central Banks of ...

Open question

The establishment of “Payment Banks’ is being allowed in India to promote Financial Inclusion. Which of the following statements is/are correct in this conte...

Open question
Prelims 2018· Statement-based questions, Conceptual understanding

With reference to digital payments, consider the following statements: 1. BHIM app allows the user to transfer money to anyone with a UPI-enabled bank accoun...

Open question
Prelims 2019· Multi-statement analysis, Institutional roles and functions

Consider the following statements: The Reserve Bank of India’s recent directives relating to ‘Storage of Payment System Data’, popularly known as data diktat...

Open question
Prelims 2023· Multi-statement analysis, Conceptual understanding

With reference to Central Bank digital currencies, consider the following statements : 1. It is possible to make payments in a digital currency without using...

Open question
Prelims 2024· Statement-based questions, Conceptual understanding

Consider the following statements in respect of the digital rupee : 1. It is a sovereign currency issued by the Reserve Bank of India (RBI) in alignment wit...

Open question
Prelims 2026· Multi-statement analysis, Conceptual understanding

Which one of the following statements about Unified Payments Interface (UPI) and Central Bank Digital Currency (Digital Rupee) is **not** correct?

Open question

Why is BRICS exploring cross-border payments? |Explained

06 Sep 2026 · CBDCs are digital versions of national currencies issued by central banks. For cross-border payments, wholesale CBDCs exchanged on common platforms offer benefits like reduced settlement risk and lower costs, presenting a modern alternative to traditional international payment systems.

Read article

Related topics

Current topic

Central Bank Digital Currencies (CBDCs)

Often confused with

Digital Public Infrastructure for Financial Inclusion and Health

Open notesOften confused with

Cross-border Payments Systems

Open notes

Practice writing on this topic

UPSC has asked 8 linked questions on Central Bank Digital Currencies (CBDCs) in Mains. Write an answer to one — and get it evaluated.

See Mains PYQsEvaluate an answer

UPSC Prelims PYQs on Central Bank Digital Currencies (CBDCs)

Practice official previous year questions asked by UPSC related to this concept.

With reference to Central Bank digital currencies, consider the following statements : 1. It is possible to make payments in a digital currency without using...

2023·Economy
Solve

Which one of the following statements about Unified Payments Interface (UPI) and Central Bank Digital Currency (Digital Rupee) is **not** correct?

2026·Economy
Solve

Consider the following statements in respect of the digital rupee : 1. It is a sovereign currency issued by the Reserve Bank of India (RBI) in alignment wit...

2024·Economy
Solve

The term ‘Core Banking Solution’ is sometimes seen in the news. Which of the following statements best describes/describe this term? 1. It is networking of a...

2016·Economy
Solve

With reference to ‘Bitcoins’ sometimes seen in the news, which of the following statements is/are correct? 1. Bitcoins are tracked by the Central Banks of ...

2016·Science & Technology
Solve

With reference to digital payments, consider the following statements: 1. BHIM app allows the user to transfer money to anyone with a UPI-enabled bank accoun...

2018·Economy
Solve

The establishment of “Payment Banks’ is being allowed in India to promote Financial Inclusion. Which of the following statements is/are correct in this conte...

2016·Economy
Solve

Consider the following statements: The Reserve Bank of India’s recent directives relating to ‘Storage of Payment System Data’, popularly known as data diktat...

2019·Economy
Solve

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