Consider the following statements in respect of the digital rupee: 1. It is a sovereign currency issued by the Reserve Bank of India (RBI) in alignment with its monetary policy. 2. It appears as a liability on the RBI’s balance sheet. 3. It is insured against inflation by its very design. 4. It is freely convertible against commercial bank money and cash. Which of the statements given above are correct ?

1. A. 1 and 2 only
2. B. 1 and 3 only
3. C. 2 and 4 only
4. D. 1, 2 and 4

Answer: D

Explanation

Statement 1 is correct: The digital rupee (Central Bank Digital Currency – CBDC) is a legal tender issued by the RBI, reflecting its sovereign nature and integration with monetary policy. Statement 2 is correct: Like physical currency, CBDC is a direct liability of the central bank, appearing on the RBI’s balance sheet, distinguishing it from commercial bank money. Statement 3 is incorrect: No currency, digital or physical, is inherently insured against inflation by its design; inflation is a macroeconomic phenomenon influenced by various factors. Statement 4 is correct: A key feature of CBDC is its fungibility and convertibility with existing forms of money (commercial bank deposits and physical cash) on a 1:1 basis. Therefore, statements 1, 2, and 4 are correct. This question assesses understanding of a significant recent development in financial technology and monetary policy.