India’s central bank, the Reserve Bank of India, has urged major economies to focus on developing central bank digital currencies instead of stablecoins, which it believes pose mounting risks to financial stability and monetary sovereignty.
Summary
- The Reserve Bank of India has urged global policymakers to prioritize central bank digital currencies over stablecoins.
- The central bank said stablecoins fall short of key monetary principles and could weaken domestic monetary policy transmission.
- CBDC adoption has been slow across the globe.
“Stablecoins have emerged as a key component of the crypto asset ecosystem, and their prominence has risen following legal and regulatory clarity in select jurisdictions,” the RBI said in its yearly financial stability report, released on Dec. 31.
However, it warned that these assets can “create important financial stability risks because of their inherent vulnerabilities.”
“As stablecoins position as an alternative form of money, it is vital to recognise that they fall short of the foundational requirements expected from a sound monetary system – singleness, elasticity, and integrity,” it added.
According to the central bank, CBDCs, on the other hand, preserve the “singleness of money” and the integrity of the financial system, which positions these as the superior monetary framework for the digital era.
For those unaware, CBDCs are sovereign-backed digital currencies that are issued and guaranteed by the central banks of their respective countries. Stablecoins, however, are designed to mimic fiat currency value without the institutional credibility, regulatory oversight, or structural limitations that CBDCs come with.
But stablecoins are often issued by private corporations or fintech firms, which has triggered regulatory backlash across several jurisdictions. A string of past failures, where stablecoins have lost their peg to the underlying asset, has further exacerbated these concerns and undermined regulatory confidence.
“The rapid growth in foreign currency pegged stablecoins can lead to currency substitution and challenge a country’s monetary sovereignty,” by weakening the transmission channels of domestic monetary policy, the RBI said.
Meanwhile, the perceived benefits of stablecoins, such as pseudonymity, low transaction costs, and cross-border usage, were also framed as regulatory risks by the central bank rather than public advantages.
“The RBI, therefore, strongly advocates that countries should prioritise central bank digital currencies (CBDCs) over privately issued stablecoins to maintain trust in money, preserve financial stability and design next generation payments infrastructure that is faster, cheaper and secure.”
It argues that CBDCs can offer the same benefits, or even outperform stablecoins, while functioning as the “ultimate settlement asset” that can “remain the anchor for trust in money.”
The RBI has been working on the digital rupee since 2022 as it maintains a cautious stance towards crypto assets, including stablecoins.
Several banks participated during the early phase pilot, following which the CBDC was issued to the public through selected banking channels.
However, adoption has been sluggish, with the Reserve Bank of India reporting 1 million retail transactions by late June, a milestone achieved only after local banks introduced incentives and partially paid employee salaries using the state-issued digital currency.
Across the globe, progress has been similar, with the Atlantic Council’s tracker noting that only three CBDCs have been launched so far.
The stablecoin market, in comparison, has surged, as a number of major economies such as the United States and Europe have introduced dedicated regulatory frameworks to support growth and adoption.
This has prompted strong interest from financial institutions backing the development and usage of fully collateralized, compliant stablecoins across the global payments infrastructure.
