With reference to Central Bank digital currencies, consider the following statements

With reference to Central Bank digital currencies, consider the following statements: (UPSC CSE 2023)

1. It is possible to make payments in a digital currency without using the US dollar or SWIFT system. 
2. A digital currency distributed with a can be condition programmed into it such as a time- frame for spending it. 

Which of the statements given above is/are correct?

1. 1 Only 
2. 2 Only 
3. Both 1 and 2 
4. Neither 1 nor 2

Answer: C

Explanation

• Statement 1 is correct:  Since  CBDCs operate on domestic or bilateral digital payment systems, transactions can take place directly between participating countries without routing through the US dollar or the SWIFT messaging system. For example, countries experimenting with cross-border CBDC platforms aim to reduce dependence on dollar-dominated settlement systems. Thus, CBDCs can facilitate direct currency settlement independent of traditional international payment infrastructure.
• Statement 2 is correct: One of the key features of certain CBDC designs is programmability. A CBDC can be programmed with specific conditions — such as restricting its use for particular goods, imposing an expiry date (time-frame for spending), or enabling automatic tax deductions. This feature is not available in traditional physical currency and represents a technological innovation associated with digital sovereign money.

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