1. Money
Money is a broad concept that represents anything widely accepted as a medium of exchange, a store of value, and a unit of account. It does not have to be physical.
Characteristics of Money:
Medium of Exchange – Used to buy goods and services.
Store of Value – Maintains its worth over time.
Unit of Account – Used to measure value (e.g., price tags).
Fungible & Durable – Can be exchanged for other goods and lasts over time.
Examples of Money:
Gold, silver (historically used as money).
Digital money (e.g., Bitcoin, bank deposits).
Paper currency (if it functions as money).
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2. Currency
Currency is a physical form of money issued by a government. It is a subset of money and typically exists as coins and banknotes.
Characteristics of Currency:
Tangible – Exists as paper or metal.
Issued by Governments – Controlled by central banks (e.g., Reserve Bank of India, Federal Reserve).
Legal Tender – Must be accepted for transactions within a country.
Examples of Currency:
Indian Rupee (INR), US Dollar (USD), Euro (EUR).
Paper bills and metal coins.
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Key Differences
Conclusion
All currency is money, but not all money is currency.
In modern economies, digital money (bank balances, cryptocurrencies) is increasingly replacing physical currency.
Digital Currencies & Central Bank Digital Currencies (CBDCs)
As economies become more digital, traditional currency is evolving into new forms, including digital currencies and CBDCs.
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1. Digital Currencies
A broad category that includes any form of money stored and transacted electronically. These are not necessarily controlled by governments.
Types of Digital Currencies:
1. Cryptocurrencies – Decentralized and based on blockchain technology.
Examples: Bitcoin (BTC), Ethereum (ETH), Solana (SOL).
Not backed by any central authority.
2. Stablecoins – Cryptocurrencies pegged to real-world assets (like the US dollar) to reduce volatility.
Examples: Tether (USDT), USD Coin (USDC), DAI.
Often used for digital transactions and DeFi applications.
3. Centralized Digital Money – Money stored in digital form by banks or financial institutions.
Examples: Online bank balances, PayPal, UPI, digital wallets.
Controlled by private companies or financial institutions.
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2. Central Bank Digital Currencies (CBDCs)
CBDCs are digital versions of a country's official currency, issued and regulated by the central bank. Unlike cryptocurrencies, CBDCs are centralized and have government backing.
Key Features of CBDCs:
✅ Issued by Central Banks – Controlled by national financial authorities (e.g., RBI, Federal Reserve).
✅ Legal Tender – Recognized as official currency.
✅ Not Decentralized – Unlike Bitcoin, CBDCs are regulated.
✅ Can Be Interest-Bearing – Some designs allow central banks to pay interest on digital holdings.
Examples of CBDCs Around the World:
India – Digital Rupee (pilot launched by RBI in 2022).
China – Digital Yuan (e-CNY, one of the most advanced CBDCs).
Europe – Digital Euro (being explored by the European Central Bank).
USA – Digital Dollar (under research, no official launch yet).
How CBDCs Differ from Cryptocurrencies
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3. Why Are Governments Developing CBDCs?
Reduce dependence on cash – Cash transactions are declining.
Enhance financial inclusion – CBDCs can provide banking services to the unbanked.
Improve transaction efficiency – Faster cross-border payments.
Compete with cryptocurrencies – Governments want to retain control over monetary policy.
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Conclusion
Digital currencies include both cryptocurrencies (decentralized) and CBDCs (government-controlled).
CBDCs aim to provide the benefits of digital transactions while maintaining regulatory control.
Meta (formerly Facebook) attempted to launch Libra/Diem, but regulatory hurdles shut it down.
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