With reference to Central Bank digital currencies, consider the following statements : 1. It is possible to make payments in a digital currency without using US dollar or SWIFT system. 2. A digital currency can be distributed with a condition programmed into it such as a time-fame for spending it. Which of the statements given above is/are correct?

1. A. 1 Only
2. B. 2 Only
3. C. Both 1 and 2
4. D. Neither 1 nor 2

Answer: C

Explanation

Both statements are correct regarding Central Bank Digital Currencies (CBDCs):
1. **Statement 1**: One of the key motivations for developing CBDCs is to facilitate more direct and efficient cross-border payments, potentially bypassing traditional correspondent banking networks and systems like SWIFT, thereby reducing reliance on a single dominant currency like the US dollar for international transactions.
2. **Statement 2**: CBDCs can be designed with ‘programmability’ features. This allows for conditions to be embedded into the digital currency itself, such as an expiry date for spending (time-frame) or restrictions on its use for specific purposes or vendors. This feature is particularly useful for targeted fiscal transfers or subsidies.
CBDCs represent a significant development in global finance, frequently discussed in the context of financial innovation and geopolitical shifts, making it a key current affairs topic.