A 2021 BIS (Bank for International Settlement) survey of central banks found that 86% of central banks were actively researching the potential for CBDCs, 60% were experimenting with the technology and 14% were deploying pilot projects.
To an extent the preference for cash represents a discomfort for digital modes of payment, CBDC is unlikely to replace such cash usage. Even though COVID-19 has altered this scenario to an extent, still, in many rural as well as potential tax bypassing areas, the issue still prevails
How far these goals are attained purely depends not on the announcements, but on effective planning, proper implementation, rigorous follow ups, a vigilant error correction mechanism and a sound infrastructure system.

Digitalization refers to generation, storage and processing of data in electronic technology. The discourse on the role of digital initiatives is one of the lodestones of this year's Economic Survey and the Union Budget 2022-23. The discussion stretches from the use of digital technology for the introduction of a digital currency to the use of the same for monitoring the real time economic growth of the country using cartographic techniques and satellite imaging.
The union budget 2022-23 is thus unique in the sense that it proposes to give a digital thrust to the pandemic stricken Indian Economy through several measures such as Digital Currency, Digital Payments and Banking, Ayushman Bharat Digital Mission, Digital University, Digital Ecosystem for Skilling and Livelihood and so on. Since the area is really vast and demands in-depth discussions, the canvas of the present article is restricted to Digital Currency.
Honorable Finance Minister, Nirmala Sitaraman, in  her Budget Speech 2022-23, stressed the importance of  the digital currency (para 111). She said that "Introduction of Central Bank Digital Currency (CBDC) will give a big boost to digital economy. Digital currency will also lead to a more efficient and cheaper currency management system. It is, therefore, proposed to introduce Digital Rupee, using blockchain and other technologies, to be issued by the Reserve Bank of India starting 2022-23"
CBDC is the legal tender issued by a central bank in digital form (RBI, 2021). It is the same as a fiat currency   and is exchangeable one-to-one with the fiat currency. Only its form is different. It is inspired by Bitcoin  and blockchain   based crypto currencies with Sovereign status. The Bahamas, Nigeria and  Eastern  Caribbean Currency Union  have adopted digital currencies till date.   Seven countries involved in Eastern Caribbean Currency Union are Antigua and Barbuda, Dominica, Grenada, Montserrat, St. Kitts and Nevis, Saint Lucia, and St. Vincent and the Grenadines.
The concept of digital currency is now being discussed worldwide by Central banks, economists and Governments. A 2021 BIS (Bank for International Settlement)   survey of central banks   found that 86% of central banks were actively researching the potential for CBDCs, 60% were experimenting with the technology and 14% were deploying pilot projects.
Why do we need digital currency?
The digital economy is the economic activity that results from billions of everyday online connections among people, businesses, devices, data, and processes. The backbone of the digital economy is hyper connectivity which means growing interconnectedness of people, organizations, and machines that results from the Internet, mobile technology and the internet of things (IoT) .
The commonly agreed advantages of CBDC includes (Sankar, 2021).
a)    Digital currency facilitates negative interest rate monetary policy  . Negative interest rates can boost economic activity by encouraging banks and other entities to lend or invest excess funds rather than pay penalties on funds in bank accounts.
b)    With the decreased usage of paper currency, central banks want to popularize a more acceptable electronic form of currency.
c)    The increasing use of private currencies such as Bitcoin, Ethereum, Tether and Cardano   is raising a threat for central banks. So, the central banks have to seek to meet the public's need for digital currencies.
d)    CBDC reduces need for interbank settlement and its connected risk in the settlement system since it is transacted like cash.
e)    Another important advantage of digital currency is that it enables a more real time and cost-effective globalization of payment systems. It is conceivable for an Indian importer to pay its American exporter on a real time basis in digital Dollars, without the need of an intermediary. This transaction would be final, as if cash dollars are handed over, and would not even require that the US Federal Reserve system is open for settlement. Time zone difference would no longer matter in currency settlements.
f)    Cost of printing, transporting, storing and distributing currency can be reduced.
As envisaged in the budget, digital currency can boost digital economy and lead to a cheaper and efficient currency management system compared to the traditional hub and spoke system.
As per the Survey on Retail Payment Habits of individuals (SRPHi) conducted by RBI , cash remained as the most preferred mode of payment for receiving money for regular expenses and was followed by digital mode. Participants also mentioned their preference for cash for small value transactions (with amount up to Rs.500) meanwhile digital modes of payments being preferred for transactions involving higher amounts.
India has a unique case of increasing proliferation of digital payments in the country coexisting with sustained interest in cash usage, especially for small value transactions. To an extent the preference for cash represents a discomfort for digital modes of payment, CBDC is unlikely to replace such cash usage. Even though COVID-19 has altered this scenario to an extent, still, in many rural as well as potential tax bypassing areas, the issue still prevails.
So, in a country like India, where most people prefer cash for small transactions,  how much will be the incidence and the intensity of the use of digital currency is the blind spot the policy makers are yet to focus on. CBDC will take more time than envisaged to replace cash.
Apart from the difficulties in penetration into the common market, there are still some more challenges ahead for the digital currencies (Sankar, 2021).
1. Advancement of  technology
 Absorption of CBDCs in the economy is subject to technology preparedness. The creation of population scale digital currency system is contingent upon evolution of high speed internet and telecommunication networks and ensuring the wider reach of appropriate technology to the general public for storing and transacting in CBDCs. In developing countries, lower level of technology adoption may limit the reach of CBDCs and add to existing inequalities in terms of accessing financial products and services
2. Risk of cyber security
CBDC ecosystems may be at similar risk for cyber-attacks as the current payment systems are exposed to. Further, in countries with lower financial literacy levels, the increase in digital payment related frauds may also spread to CBDCs. Ensuring high standards of cyber security and parallel efforts on financial literacy is therefore essential for any country dealing with CBDC.
3. Reduction in transaction demand for bank deposits
Introduction of CBDCs, can cause a reduction in the transaction demand for bank deposits. Since transactions in CBDCs reduce settlement risk as well, they reduce the liquidity needs for settlement of transactions (such as intra-day liquidity). In addition, by providing a genuinely risk-free alternative to bank deposits, they could cause a shift away from bank deposits. (Dyson and Hodgson, 2016).
If banks begin to lose deposits over time, their ability for credit creation gets constrained. Since central banks cannot provide credit to the private sector, the impact on the role of bank credit needs to be well understood.
Conclusion
The effective use of digital technology can shift the horizon of scopes to a large extend. The technology-based initiatives as envisaged in the budget can promote growth of the country along with paving the paths to more inclusive development. But how far these goals are attained purely depends not on the announcements, but on effective planning, proper implementation, rigorous follow ups, a vigilant error correction mechanism and a sound infrastructure system.

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