Impact of Digitisation on Inflation

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.