Green bonds, digital currency hold promise

By Educrat IAS Academy | | 0 comment | 31 March, 2022 | 0

Green bonds, digital currency hold promise:

The SGB (sovereign green bond) raised will be part of the aggregate borrowing programme and has to be used for projects which are ESG (environment, social and governance) compliant.
Hence, if the bond is being used to finance a power project or road, or in case it is used to finance revenue expenditure, it has to be ESG compliant.
If they succeed at the central level, green bonds can be replicated by states.

Pricing challenge: As these bonds are different from G-secs (government securities), they may have to provide a better return as all ESG compliant companies have to make special investments that will push up costs.
Further, given the low-interest rates prevailing today — real returns on deposits are negative — the SGBs can be issued as tax-free bonds, open to the public.

Any issuance of CBDC on a voluntary basis raises a question on the security of the owner’s information. CBDC has to be clear on the issue of confidentiality as it is bound to be a matter of concern.
The future of the banking system: If people have to be incentivised to move voluntarily to the CBDC, the cash exchanged must earn interest or else all money will go to bank accounts where a minimal interest rate can be earned.
Issue of security: Any financial system that runs on technology can be hacked.
There is a real danger of cyber fraud increasing as the majority of the population is not tech-savvy.
Similarly, there is always downtime for bank servers when banking transactions cannot be carried on. This cannot be allowed to be the case with CBDC as it has to be available on a 24 x 7 basis.