Month: March 2022

The provision of Central Bank Digital Currency (CBDC) has been circulating for quite some time now globally. For instance, China has already issued digital currency, eCNY, as a part of its third trial; a concept they have been working on since 2014. At present, China is leading amongst G20 countries who are still exploring the whole concept of digital currencies. Similarly, India is also testing digital currency given the traction cryptocurrency has received in the market post the pandemic. The Reserve Bank of India (RBI) has said that the country needs to initially adopt a basic model of central bank digital currency (CBDC) and use the payment system architecture as a backbone to make a state-of-the-art system. As per RBI report on ‘Trend and Progress of Banking in India 2020-21’, “Given its dynamic impact on macroeconomic policy making, it is necessary to adopt basic models initially, and test comprehensively so that they have minimal impact on monetary policy and the banking system. India’s progress in payment systems will provide a useful backbone to make a state-of-the-art CBDC available to its citizens and financial institutions.” Cryptocurrency on the other hand is traded amongst individuals and has very little regulations attached to it which makes it a risky proposition. In India, although cryptocurrency has gained momentum and has appealed to the public, the government has been continuously implementing restrictions on its trading. Trading, mining and holding cryptocurrency could soon be illegal in India as the Indian government is proposing a new Bill that could ban all transactions related to cryptocurrencies. Amidst this, the question arises, what is the future of India; Crypto currency or CBDC? 1. The timing of CBDC coincides with a growing interest in cryptocurrencies in India. They both are in their infancy stage in India. While CBDC is yet to be developed by the RBI, cryptocurrency needs to be regulated and accepted by the government. 2. Cryptocurrency are independent and dealt with in autonomy, meaning no single individual or entity is controlling or regulating it. On the other hand, CBDC will be regulated and function under the purview of the central bank of India. 3. Cryptocurrency can be capped, for instance, Bitcoin is hard- capped at 21 million coins which makes it finite in nature while CBDC can be infinitely increased, as per usage. 4. The technology behind cryptocurrency differs from CBDC. While cryptocurrency is operated through blockchain, a distributed ledger recording transactions that ensures the system is decentralized and secure from privacy intrusions, CBDC does not have a clear anatomy yet. 5. Cryptocurrency is and can function globally whereas CBDC will be specific to the country as the regulatory framework may differ from country to country. Considering these basic points, cryptocurrency and its underlying technology will likely disrupt the existing financial structures and is here to stay despite resistance from the regulators. Moreover, corporations are participating in the growth of cryptocurrency by dipping their feet into it. However, what remains to be seen is the long-term effects of digital currencies.

There is a common notion that ‘technology’ is a separate physical entity. They don’t view technology as an element that can possess variable characteristics, for instance- forecasts, probability statements etc. Technology is considered to either exist in a given situation or not. It is seldom seen as a paramount and prerequisite to other components it is attached to. Technology is ‘knowledge’ which can vary and mutate over time. It can be collaborated with almost every element and can transform its functioning. It can be collaborated with a basic functioning to a practical problem, device, production machine etc. Technology has the ability to transform the entire working. The financial ecosystem is leveraging technology to the best of their capacity to devise strategies that can best suit the service they intend to construct. To attain this, technology needs to be mutated with other elements to customize and introduce variations. Financial institutions are heavily investing in financial modelling and forecasting to catapult customer centric services. Here are 5 ways how technology has enabled financial modelling and forecasting- 1. Market Value Analysis Market forecasts are undertaken to predict the size, characteristics, preferences, needs etc. of a targeted market/audience with near accuracy. Forecasting and modelling has allowed market analysts to estimate the size of the market and to evaluate the probabilities and implications of the market success. It has also allowed them to predict future market structure, opportunities, threats etc. thereby taking their analyses to decimal accuracy. 2. Individual Analysis Technology driven firms are heavily investing and constructing insights driven from competent and imaginative people. By analysing and observing measurements of underlying data, trends, behaviour, interactions etc., they build a personality which is then tracked and catered to. Although this includes its own inherent error, this approach has helped financial institutions in bringing expectation closer to reality. 3. Demand Analysis It is believed that technology is only said to be utilized when it responds to a need otherwise, it is never a functioning reality. Financial institutions strive to cater to this need by projecting future needs and requirements while upgrading existing technology. 4. Demographic and Sociological Analysis Technology has enabled forecasting and modelling to the magnitude where it can also determine future needs and performance of services specific to demographic areas. Each demographic area has a different sociological approach and forecasting helps in modelling the services or products appropriately. 5. Conditional Demand Analysis This assessment helps in determining and predicting the conditions under which new technology will be needed, its performance and when the event shall occur. While considering vast demographics, the requirement for the type of technology, its level of intervention and the area of need may vary. Financial forecasting and modelling has become an integral part of ‘technological analysis’. Apart from the stated pointers, it has completely revamped how the markets, customers, demand and supply etc. is viewed and responded to. These are merely preludes to more intrinsic areas where forecasting and thereby modelling is and can be used in the financial ecosystem.