Context:
Digitalisation’s impact on monetary policy, particularly inflation, requires close monitoring, as price disparities between online and offline goods could potentially steepen the Phillips curve, prompting a reassessment of traditional inflation models said RBI Governor.
Key Highlights:
- The effect of digitization would likely be closely monitored on monetary policies that deal with inflation.
- Differences in prices between goods sold on the Internet and in retail affect the Phillips curve and may require a rethink of classical inflation models.
- They all draw interest from researchers to study the effects digital payments, FinTech, central bank digital currencies, and AI have on the transformation of monetary policy transmission.
Phillips Curve: Inflation-Unemployment Relationship
- The Phillips curve states that inflation and unemployment
- Inflation and unemployment have inverse relationship.
- Concept 20th-century macroeconomic policy.
Digital Currency
Digital currency, also known as electronic money, is a type of money that is stored, managed, and exchanged primarily through digital systems, like the internet.
Type of Digital Currency
- Cryptocurrencies: These are digital currencies that operate on decentralized blockchain networks and use cryptography to secure transactions. Bitcoin was the first cryptocurrency, released in 2009.
- Central bank digital currency (CBDC): India launched its CBDC in November 2022.
