RBI Deputy Governor T Rabi Sankar highlighted significant risks of stablecoins to monetary sovereignty and financial stability. He argued they lack core attributes of money and promoted CBDCs as an inherently superior and safer alternative for India.
The Reserve Bank of India (RBI) Deputy Governor T Rabi Sankar on Friday raised concerns over the growing prominence of stablecoins, arguing that they pose significant risks to monetary sovereignty, financial stability and banking systems, while offering few benefits that cannot already be delivered by existing payment infrastructure.
Stablecoins Lack Core Attributes of Money
Delivering the keynote address at a media conclave, Sankar said stablecoins lack the core attributes of modern money, fiat backing and singleness, and therefore are structurally unsuitable to anchor a financial system.
"Over time, the form of money has evolved with technology - from commodities to metal to paper to balances in deposit accounts to now, digital tokens. While the forms of money have evolved with technology, the fundamental character of money - what it represents, or what gives it credibility - has always been that it represents value that has users' trust," he said.
The RBI DG noted that money derives credibility from sovereign backing and trust, whereas unbacked cryptocurrencies have no intrinsic value or promise to pay, making them speculative instruments rather than money or even financial assets.
Systemic Risks and Economic Impact
While stablecoins, which are typically pegged to fiat currencies, come closer to functioning as money, he cautioned that they remain a form of private currency and raise systemic concerns.
"Stablecoins could encourage currency substitution, weaken monetary policy transmission, complicate capital account management and undermine bank-led credit intermediation, particularly in emerging market and developing economies such as India. He also flagged the risk of loss of seigniorage income, a sovereign revenue that could instead accrue to private stablecoin issuers, often based overseas.
Promoting CBDCs as a Superior Alternative
On the policy front, the RBI DG said India should adopt a cautious approach towards stablecoins and instead promote innovation through central bank digital currencies (CBDCs).
CBDCs, he argued, combine the advantages of digital tokens with sovereign backing, monetary stability and regulatory oversight, while avoiding the risks posed by private digital currencies.
"CBDCs are digital tokens like stablecoins, yet they are inherently superior since they satisfy all the attributes that money should have - fiat, single, trusted and representing value - and do not pose many of the risks associated with stablecoins," he said. "They can perform all the functions stablecoins claim to offer, such as programmability, atomic settlement, lower cross-border frictions, while being fully anchored within the existing financial system."
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