UPSC Prelims 2024 · GS Paper I: Consider the following statements :Statement-I :If the United States of America (USA) were to…
Consider the following statements :
Statement-I :
If the United States of America (USA) were to default on its debt, holders of US Treasury Bonds will not be able to exercise their claims to receive payment.
Statement-II :
The USA Government debt is not backed by any hard assets, but only by the faith of the Government.
Which one of the following is correct in respect of the above statements ?
Answer (a) & explanation
Both statements are correct and Statement II explains Statement I (a). Statement II is right: US Treasury bonds are backed only by the "full faith and credit" of the US government, not by gold, land or any other hard asset. Statement I follows from it: there is no collateral a bondholder could seize, and a sovereign cannot be taken to court and forced to pay like a private borrower. So in a default, holders would have no asset to enforce their claim against. Options (b), (c) and (d) wrongly break this cause-and-effect link.
Notice the wider idea: most modern government debt and fiat money rest on trust, not on gold. That is why fights over the US debt ceiling shake world markets, and why rating agencies watch them closely.
it feels as if a bondholder can always "claim" payment. A claim needs something to enforce it against; sovereign debt has only trust behind it.
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Answer as per the official UPSC answer key.
Same theme in UPSC Mains
- MAINS UPSC Mains 2025 · GS Paper II · Q20“The reform process in the United Nations remains unresolved, because of the delicate imbalance of East and West and entanglement of the USA vs. Russo-Chinese alliance.”…
- MAINS UPSC Mains 2026 · GS Paper I · Q12Linguistic reorganization of Indian States was driven by popular pressure from below. Comment.
- MAINS UPSC Mains 2023 · GS Paper II · Q3“The states in India seem reluctant to empower urban local bodies both functionally as well as financially.” Comment.
Related questions from other years
Which one of the following best describes the key objective of India's 'Open Network for Digital Commerce' (ONDC) initiative ?
Answer (c) & explanation
ONDC aims to break the dominance of large platforms (c). The Open Network for Digital Commerce, a DPIIT initiative (2021-22), is an open set of rules, like UPI for shopping. A buyer on one app can buy from a seller listed on another app. This interoperability lets small sellers reach buyers without joining a giant platform. Option (a) is wrong: it does not give the government control of transactions. Option (b) is wrong: private players can join; they are not replaced. Option (d) is wrong: it does not force UPI payments.
Notice ONDC's design: it is a not-for-profit company and part of India's Digital Public Infrastructure, along with Aadhaar, UPI and DigiLocker. It now covers food, groceries and mobility too.
options (a), (b) and (d) use strong words: "all", "replace", "mandate". A public digital platform usually opens a market; it does not take it over.
Answer as per the official UPSC answer key.
Which one of the following statements about Unified Payments Interface (UPI) and Central Bank Digital Currency (Digital Rupee) is not correct ?
Answer (d) & explanation
Statement (d) is not correct (d). Under UPI, money moves between bank accounts; the deposit is a liability of the bank. The Digital Rupee (e₹) is like a currency note in digital form, a direct liability of the RBI, not of users or banks. Option (a) is correct: UPI is a payment system, while the e-rupee is sovereign currency. Option (b) is correct: an e-rupee transfer moves value from wallet to wallet with no separate settlement. Option (c) is correct: e-rupee wallet transactions do not appear in bank statements.
Notice the legal base: the RBI Act was amended in 2022 to let the RBI issue a CBDC. Pilots began that year in wholesale (e₹-W) and retail (e₹-R) forms.
a "not correct" question. Look for the statement that puts the RBI's liability on someone else.
Answer as per the official UPSC answer key.
Which of the following statements about Real-World Assets (RWA) Tokenization are correct ?
- 1. Tokenization is the process of turning real world assets into digital tokens using blockchain technology.
- 2. Tokenization of real world assets offers 24x7 access, promoting financial inclusion.
- 3. Tokenization of real world assets will allow the access to high growth investment opportunities for individuals in India.
Select the answer using the code given below :
Answer (a) & explanation
All three statements are correct (a). Statement 1 is right: tokenization turns a real asset, like a building, bond or gold, into digital tokens recorded on a blockchain. Statement 2 is right: tokens can be traded 24x7, which widens financial inclusion. Statement 3 is right: small, fractional tokens let ordinary individuals get into high-growth investments that once needed crores. So options (b), (c) and (d) fail.
Notice the risks: unclear regulation, cyber threats and weak investor protection. In India, related steps include Fractional Ownership Platforms and REITs and InvITs, which already let small investors own slices of real estate and infrastructure. The RBI is also testing tokenized deposits and government securities in sandbox pilots.
Answer as per the official UPSC answer key.
A bond whose proceeds are used only to finance or refinance a combination of both environmental and social projects is called :
Answer (c) & explanation
This is a sustainability bond (c). Under the ICMA principles followed worldwide, a bond that funds a mix of environmental and social projects is a sustainability bond. Option (a) is wrong: a green bond funds only environmental projects, like solar power. Option (b) is wrong: a social bond funds only social projects, like affordable housing. Option (d) is wrong: a sovereign bond is any bond issued by a national government, whatever its use.
Notice India's practice: India has issued Sovereign Green Bonds since January 2023, with the money going to projects like metro rail and renewable energy. A sustainability-linked bond is different: its money can go anywhere, but its interest rate depends on meeting ESG targets.
"Green Bond" is the most familiar term. The words "both environmental and social" point to the combined label.
Answer as per the official UPSC answer key.
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