Central Bank Digital Currency in India: 7 myths busted

Summary: Central Bank Digital Currency is an exciting development within the payments industry with technology. Check out some myths around CBDC.

07 Nov 2023 by Team FinFIRST

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Over the last few months, Central Bank Digital Currency (CBDC) has become a trending topic and for a good reason. Many countries, including India, are in the process of creating CBDCs to transition towards a wider use of digital currency, fuelling financial inclusion and bringing efficiency in digital payments.

The Reserve Bank of India (RBI) has put in motion its own pilot project for the Digital Rupee, also referred to as ‘e₹’. While there is a lot of excitement around the Digital Rupee, there are also many questions and uncertainties. Here, we bust several Central Bank Digital Currency myths to help you navigate this new world of digital currency.

Myth 1: CBDC in India will replace Cash, Debit Cards, and Credit Cards

Fact: Digital Rupee is simply the digital form of currency notes, and it is held in a CBDC digital wallet. The concept of the e₹ is to create an alternative to physical currency so that users have an additional avenue of payment and will not replace cash, debit cards, or credit cards.

Myth 2: Digital Rupee is a Cryptocurrency

Fact: Central Bank Digital Currency is not a Cryptocurrency like Bitcoin or Ethereum, which are traded without a monetary authority. Since e₹ holds the same value as a physical bank currency note and is regulated by the central bank, it is safer and more secure when transacting.

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Myth 3: It is only for business transactions

Fact: India’s Central Bank Digital Currency will be available for all kinds of transactions, just like the physical currency. However, since it is currently in the pilot stage, it is available only to a Closed User Group (CUG) for testing.

Myth 4: I can buy digital rupee using a Credit Card

Fact: No. You cannot buy e₹ through your credit card. If you want to buy digital currency tokens, you can do so through UPI functionality or your linked IDFC FIRST Bank account. This facility is available 24/7. Also, when you make payments to purchase e₹, it gets credited to your wallet instantly.

Myth 5: I can use digital rupee via ATM cards and online banking

Fact: No. You cannot use e₹ while online banking or for transactions made on your ATM card. Since the digital rupee is explicitly stored in the CDBC digital wallet, you can only transact via the wallet.

Myth 6: Digital rupee is a new investment option

Fact: No, unlike Cryptocurrency, shares, and stocks, which you can invest in and trade on different platforms, you cannot invest in the digital rupee. The e₹ is the digital version of a physical rupee, so its value will not appreciate or depreciate the way investments do.

Myth 7: I can save taxes through digital rupee

Fact: No, you cannot save tax by holding e₹ in a CBDC digital wallet, as having this digital currency is similar to having physical currency.

Select customers get the first glimpse of the digital currency

IDFC FIRST Bank is part of a select group of banks that the RBI has chosen to run this pilot project to assess the strength of the entire process in real time and determine the future of digital currency. Existing IDFC FIRST Bank customers selected to participate in the project will be able to experience the functionality of digital currency and avail of all its benefits in this pilot phase.

Depending on the results, the central bank will decide on a wider implementation of the digital rupee and when and how it could be rolled out at scale.

At present, India, like some other countries is working towards developing its e-currency to bolster the country’s digital economy and decrease costs associated with managing physical cash. It also signifies the Reserve Bank of India's readiness in making CBDC a reality for India. Additionally, it will lead to improved surveillance to combat illegal activities, enable better financial inclusion, and enhance the efficiency of payment systems, among other things.

Disclaimer

The contents of this article/infographic/picture/video are meant solely for information purposes. The contents are generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances. The information is subject to updation, completion, revision, verification and amendment and the same may change materially. The information is not intended for distribution or use by any person in any jurisdiction where such distribution or use would be contrary to law or regulation or would subject IDFC FIRST Bank or its affiliates to any licensing or registration requirements. IDFC FIRST Bank shall not be responsible for any direct/indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information mentioned. Please consult your financial advisor before making any financial decision.

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