Context: RBI has introduced programmability and Offline Functionality in Central Bank Digital Currency (CBDC).
Benefits of Offline Transactions in CBDC
- Offline transactions will open new possibilities for financial inclusion, bridging the gap for those in remote or underserved regions.
- SBI Research in its Ecowrap report said introducing an offline functionality that enables transactions in areas with limited internet connectivity could be a game changer as on-boarding people from fringe areas into the CBDC architecture would enhance its acceptability exponentially.
Benefits of Programmability of CBDC
- Programmability will permit users like, for instance, government agencies to ensure that payments are made for defined benefits, thereby enabling better targeting of government schemes and subsidies.
- Corporates will be able to program specified expenditures like business travel for their employees. Additional features like validity period or geographical areas within which CBDC may be used can also be programmed, such as programming the benefits for tribal areas and preventing fund diversion.
- Note: The programmability feature will compromise the fungibility aspect of CBDC as a programmed CBDC can only be used for the defined benefit to avail. Ex: A CBDC programmed for buying urea cannot be used to purchase an agricultural machinery or any other thing.
- It can also have other implications for monetary policy transmission as tokens may have an expiry date, by which they would need to be spent, thus ensuring consumption. The programmability of tokens can be achieved using the following:
- Smart contracts: Business rules are stored as code that is executed during transactions to verify that the token is being used correctly.
- Token version: The version of the token can be tightly linked to the technical code class. The alternative is that the version is stored as a token data field.
Read more about CBDC: here