Money Market: UPSC Previous Year Questions (Indian Economy)

Explanation

Statement 1 is incorrect: Bitcoin operates on a decentralized blockchain technology, which eliminates the need for any central authority such as central banks to track transactions. The system is maintained by miners who validate transactions and add them to the public ledger called the blockchain. While central banks are increasingly exploring the implications of cryptocurrencies and some are even considering issuing their own digital currencies (CBDCs), they do not currently track Bitcoin transactions.

Statement 2 is correct: Anyone with a Bitcoin wallet (which generates a Bitcoin address) can send and receive Bitcoins to and from any other Bitcoin address, anywhere in the world. A Bitcoin address functions as a public key, similar to a digital bank account number. This address can be shared to receive payments. Sending or receiving bitcoins requires no intermediary, allowing for peer-to-peer transactions across borders which is often faster and cheaper than traditional banking systems.

Statement 3 is correct: Bitcoin transactions are pseudo-anonymous which means that while wallet addresses are visible on the blockchain but the users’ identities are not directly linked to those addresses. This makes Bitcoin ideal for privacy-conscious users. This anonymity is a key feature that has attracted some users to Bitcoin, but it has also raised concerns about its potential use in illicit activities.

Explanation

Gold Monetization Scheme and Sovereign Gold Bond Scheme were introduced to lower the physical demand for gold and remove the estimated 20,000 tonnes of the precious metal from households where it was sitting inert. Sovereign Gold Bonds (SGBs) are government securities denominated in grams of gold issued by the RBI on behalf of the Government.

Statement 1 is correct: Sovereign Gold Bond Scheme was launched along with the Gold Monetisation Scheme in November 2015. India has a strong cultural affinity for gold, and a significant amount of gold is held by households in the form of jewelry, bars, and coins. The objective is to reduce India’s gold imports and bring all the gold lying idle with individuals and households and put it to productive use in the economy.

Statement 2 is incorrect: Neither the SGB nor the GMS is explicitly designed to promote FDI in the gold and jewellery sector. Their primary focus is on domestic gold mobilization and reducing reliance on imports. While a more organized gold market resulting from these schemes could create a conducive environment for investment, promoting FDI is not a stated objective of these schemes.

Statement 3 is correct: By offering a non-physical form of gold investment, the scheme aims to curb the demand for imported gold thus reducing the country’s import bill. The SGB scheme offers investors bonds denominated in grams of gold. These bonds provide returns linked to the market price of gold along with periodic interest payments.