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10 big misconceptions everyone has about CBDC

In the last few months, we’ve seen CBDC or Central Bank Digital Currency becoming a trending topic. There is a good reason why there is growing interest in this technology. Many countries like India are in the process of creating CBDCs. This move is to shift towards a wider use of digital currency. The end goal of this shift to a digital currency is to fuel financial inclusion and bring efficiency to digital payments.

The RBI or Reserve Bank of India put in motion its pilot project for the Digital Rupee. They’ve called it the ‘e₹’. There is certainly growing excitement and anticipation around the Digital Rupee. That said, there are plenty of questions and doubts in people’s minds. These doubts leave room for rumors and misconceptions.

This article is meant to dispel the more common misconceptions people have about CBDC.

Myth 1: CBDC is a cryptocurrency

Perhaps one of the biggest misconceptions people have about CBDCs is that they are a cryptocurrency. This led many to pit the two against each other leading to many cryptocurrency VS CBDC articles. However, a CBDC is a digital currency issued by a central bank. That gives it a legal tender status. The CBDC has the same function as physical money. You can think of it as a digital form of cash.

Crypto, however, is a form of community money. Most cryptocurrency is not backed by an official institution. That means they are completely unregulated and prone to market fluctuations. A currency that is valuable one day could be worth nothing the next day. Stablecoins are another type of cryptocurrency. They are linked to a national currency or physical assets to protect the coin from market volatility. The catch here is that the stablecoin providers are private companies with commercial interests.

Myth 2: Everyone will have central bank accounts

There are various types of CBDC developed in different countries. These types range from token-based to account-based concepts. In many countries, the role of the central banks will be minimal involvement. Commercial banks already have a massive database of consumers and maintain a strong relationship with them. Hence, they are the best choice to distribute the CBDC.

Additionally, they come equipped with existing apps that they can update to support CBDCs. Also, they know how to manage the KYC process.

Myth 3: The CBDC is based on blockchain technology

Blockchain is a powerful technology that works well in certain cases. However, a CBDC is provided by a trusted institution and so, blockchain is not essential here. There is some correlation between the design criteria for blockchain and CBDC. Specifically, how some designs can be met by blockchain and distributed ledger technology. However, many more criteria are difficult to achieve. The harder criteria include securing consecutive offline payments, ensuring the highest resilience, and balancing privacy versus transparency.

Suffice it to say that while blockchain is powerful, the CBDCs being developed do not utilize this technology.

Myth 4: Banks can track every CBDC payment

Digital payments in today’s world involve disclosing personal data to a payment service, merchant, or provider. One of the goals of a CBDC is to ensure complete anonymity up to a specific threshold. This approach is similar to how things are done with cash. The idea of balancing privacy versus transparency is one of the biggest sticking points to developing a widely accepted CBDC. Privacy and CBDC must go hand-in-hand to become a success. Banks must find a way to ensure user privacy while also meeting the necessary compliance requirements. That way, the CBDCs do not become a pool for tax evasion or money laundering.

Myth 5: CBDCs are a risk to financial and monetary stability

Perhaps the biggest misconception people have about CBDC is that they are a risk to the economy without the proper monetary policy. The process of introducing a CBDC is not as simple as people believe. An in-depth analysis is required to ensure there are no unintended side effects. To reduce these risks, a carefully designed CBDC solution should resemble physical cash. That way, everybody involved in the financial system from top to bottom keeps their existing roles.

Many people imagine that when a CBDC is introduced, there will be a drastic shift of deposit money into CBDC. The best way to overcome this problem is for commercial banks can provide a digital wallet, and exchange services, and limit the amount of CBDC an individual can hold. This approach is one of many central bank innovations to protect the economy. CBDC solutions should give the private sector options like the ability to be interoperable with other technologies. This approach enables companies to create innovative solutions for specific purposes.

Myth 6: People without bank accounts cannot get a CBDC

Approximately thirty percent of the world’s adults do not have a bank account. These people cannot participate in the digital economy and enjoy the benefits it provides. One of the objectives of CBDC is financial inclusion. That means allowing everyone to become part of the digital economy. They no longer have to worry about requirements like a bank account or a smartphone.

CBDC and the global financial system are working towards enabling even the poorest members of society to use and benefit from a CBDC. We’re already seeing CBDC pilot programs take place in sub-Saharan African countries.

Myth 7- An internet connection is required to pay with CBDC

A CBDC is a legal tender and payment must be ensured at any time. This requirement applies to areas without network coverage or an internet connection. It must also function when the power is not working, like during a power outage. Many banks are exploring ways to enable consecutive offline payments. This approach ensures that anyone, anywhere, and anytime can make digital payments without fail.

Myth 8- A CBDC is just a new version of digital payment

The current digital payment schemes either require a subscription, a bank account, credit card, or impose fees. Additionally, not every merchant accepts every type of digital payment. Often, customers find that the digital payment they used at one merchant isn’t accepted at another. A CBDC is an official legal tender with the same usage as physical money. Also, it is backed by the central bank.

This central bank innovation would be the first truly interoperable digital payment means. Put simply, it can be used at any merchant or paid to any person. The CBDC is a unit of account to value goods and services. It is also a store of value that can be exchanged, retrieved, and saved at a later time.

Myth 9- CBDC will eventually replace cash

Globally, cash remains the primary form of consumer payment. Approximately eight percent of the world’s population uses cash to pay for goods and services. This number takes into account the people with no access to banks. Cash has many unique traits, the most notable being it is the only sovereign means of payment. Another trait is that it makes the user independent of the issuer.

CBDC is therefore meant to complement rather than completely replace physical cash. CBDC performs the same functions as physical cash does and comes with its unique characteristics. It would be a significant step forward to digital financial inclusion.

Myth 10- Everyone will get one CBDC

Currently, there is no one-size-fits-all CBDC solution. Each country’s central bank must tailor their CBDC to meet their specific needs. As each country has a different banknote, the same could be said for CBDC.

For example, Japan must consider and account for offline requirements. The country often faces earthquakes and power outages. In those scenarios, access to money is essential and no access leads to chaos. Another example is Africa, where banks must tailor their solution to ensure the unbanked members of the country can participate in the digital economy.


CBDCs are a new central bank innovation and require significant time and effort to work out all the problems. It is one reason why countries are only testing them on a small scale instead of launching them outright. This slow testing coupled with rampant speculation led to the rise of many rumours and misconceptions. Hopefully, this article clears up the many doubts you have and also informs you on how CBDC helps in cross-border payments, financial inclusion, and more.

. This article is meant to dispel the more common misconceptions people have about CBDC.

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