CENTRAL BANK DIGITAL CURRENCY (CBDC) AND ITS IMPACT ON MONETARY SOVEREIGNTY

Abstract

The introduction of Central Bank Digital Currency (CBDC) is a game-changer in the world of global money. Given the digital realm reforming monetary systems, central banks are getting keen on CBDCs to offer a state-backed alternative to private digital currencies and payment systems. This paper aims at carrying out a brief analysis of CBDCs and their impact on monetary sovereignty in view of globalization, technological disruption and rising decentralized finance. Central Bank Digital Currencies (CBDCs) hold promise for bolstering the state’s monetary policy. However, they also pose various challenges to the financial stability of states and cross-border payments involving CBDCs. The study also mentions the changing character of the role of central banks such as the Reserve Bank of India and compares international approaches like the digital yuan of China and the digital euro of the European Union. The paper concludes that CBDCs represent an instrument to strengthen monetary sovereignty as well as a catalyst to redefine monetary sovereignty in the digital age. INTRODUCTION The Money has changed from bartering to metallic coins, paper currency, and now digital currency. Cryptocurrencies like bitcoin have been rising in value at a rapid rate in recent years. As a result, the dollar value and stock markets have been challenged. Decentralized digital currencies trade without a central authority which threatens to undermine the sovereignty of money. #Centralization In this context, countries’ central banks around the world have started to investigate the Central Bank Digital Currency (CBDC). It is a digital form of the sovereign currency that the state issues and regulates. CBDCs are regulated by an authority unlike cryptocurrencies which are decentralized and do not have a backing of a central authority over them. In a rapidly digitalizing economy, states are striving to gain more control over the monetary and financial system.At the heart of this debate surrounding the eurozone members and their exceptional trade ties with Europe lies monetary sovereignty. The emergence of digital currencies private and state raises questions of the future of this sovereignty.The study aims to critically analyze the interrelationship between CBDCs and monetary sovereignty. The implementation of CBDCs allow the central banks to strengthen their control over the monetary authority and also reveal the risks it carry.