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RBI Warns That Stablecoins Pose Existential Threat, Stresses CBDC As Optimal Solution

Key Points:

  • Reserve Bank of India (RBI) Deputy Governor T Rabi Sankar warns that stable currencies, or stablecoins, pose an “existential threat” to a nation’s policy autonomy.
  • Sankar advocates for CBDCs as a preferable and stable solution over stablecoins, suggesting a global financial system based on CBDCs issued by each country for settling global payments.
  • Sankar highlights concerns that stablecoins could replace national currencies in the local economy and emphasizes the need to maintain capital regulations and monetary policy independence by adopting CBDCs.
According to the local news portal The Hindu, Reserve Bank of India Deputy Governor T Rabi Sankar said on Tuesday that stable currencies constitute an “existential threat” to most nations’ policy autonomy.
RBI Warns That Stablecoins Pose Existential Threat, Stresses CBDC As Optimal Solution 4

Considering the problems of stablecoins, Sankar believes that central bank digital currencies (CBDC) are preferable “stable solutions” for any nation.

“We should ideally aim for a global financial system which rests on central bank digital currencies (CBDCs) issued by each country to settle global payments, and not rely on stablecoins,” Sankar said during a meeting with bankers in Mumbai.

The Indian central bank’s deputy governor said that stablecoins are advantageous to countries such as the United States and Europe, whose currencies stablecoins may be tied to. But, in a nation like India, they might possibly replace the usage of the rupee in the local economy, according to Sankar, due in part to the government’s transfer of profits gained by issuing currency to private players.

Stablecoins provide an international benefit, particularly to linked economies such as the United States and Europe, but they are not necessarily beneficial to countries such as India due to the transfer of seigniorage to private issuers to the extent that it replaces the use of the rupee in the economy.

“That is one aspect we have to take into account. What happens to India’s capital regulations or monetary policy. If large stablecoins are linked to some other currency, there is a risk of dollarisation,” Sankar warned at an IBA seminar.

RBI Warns That Stablecoins Pose Existential Threat, Stresses CBDC As Optimal Solution 5

He also criticized banks for charging large margins for conducting cross-border transfers, calling it not justifiable. According to a World Bank report, small-value remittances are charged 6% by banks via their corresponding banks, which is not justifiable. Such a move prompts requests for cost-cutting measures, as well as the exploration of alternatives such as cryptocurrency.

He said that although CBDC is being utilized as a policy tool in various jurisdictions, the RBI has no plans to adopt it.

Reserve Bank of India Deputy Governor T Rabi Sankar

About CBDC use cases, Sankar said that the same is essential for global transactions if nothing else, and that cross-border transactions are the most significant growing use case at present.

“If we want to maintain our capital account regulations, if we want to maintain our monetary policy independence, we have to be very careful about allowing these sort of instruments. Basic point is, stable coins can provide some of this (lower costs), but they’re only beneficial to a few countries whose currency are linked. For the vast majority of other countries, it is an existential threat to policy sovereignty,” the RBI Deputy Governor said.

According to Sankar, CBDCs are the ideal option in such cases, and a system is needed in which each nation introduces a CBDC and then there is a worldwide platform where CBDCs may be used to settle commerce.

DISCLAIMER: The information on this website is provided as general market commentary and does not constitute investment advice. We encourage you to do your own research before investing.

Harold

With a passion for untangling the complexities of the financial world, I've spent over four years in financial journalism, covering everything from traditional equities to the cutting edge of venture capital. "The financial markets are a fascinating puzzle," I often say, "and I love helping people make sense of them." That's what drives me to bring clear and insightful financial journalism to the readers of Coincu.

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