India’s RBI Warns Against Stablecoins, Advocates CBDC Adoption
The Reserve Bank of India (RBI) has once again sounded an alarm on the growing popularity of stablecoins, warning that their increasing adoption could pose significant risks to the country’s financial stability and monetary policy. Instead, the central bank has advocated for the adoption of Central Bank Digital Currencies (CBDCs) as a safer and more reliable alternative.
The bank’s cautious stance towards stablecoins highlights the country’s ongoing efforts to navigate the complexities of the digital finance economy while ensuring the stability and integrity of the financial system. As the global financial landscape continues to evolve at a rapid pace, the RBI’s concerns about stablecoins highlight the need for a more nuanced and informed discussion on the role of digital currencies in the Indian economy.
Why Stablecoins Raise Red Flags in India?
According to the latest Reuters report on India’s financial ecosystem, the RBI has reiterated its concerns about the growing acceptance of stablecoins. The bank warned that the increasing popularity of stablecoins carries heavy risks to the country’s financial stability.
In light of these risks, the central bank strongly advocates for prioritizing central bank digital currencies (CBDCs) over privately issued stable tokens. According to the RBI, CBDCs are a more reliable option for maintaining trust in money and ensuring financial stability.
“Risks from stablecoins to macrofinancial stability outweigh their purported benefits,” stated the bank. This indicates that the country continues to hold a cautious approach to crypto assets, including stablecoins.
“RBI maintains a cautious stance on crypto assets, including stablecoins, prioritising sovereign digital infrastructure to safeguard monetary sovereignty amid global shifts and preserve financial stability. It must remain the ultimate settlement asset, and it should remain the anchor for trust in money.”
As per the RBI, the market size of stablecoins remains relatively small compared to the broader crypto market despite its rapid growth. The banks added that the risks associated with these assets, such as volatility and vulnerability, outweigh their potential benefits, posing a threat to macrofinancial stability.
They added that the broader adoption of stablecoins could create new pathways for financial stability risks, especially during times of market stress. To address these risks, the RBI emphasized the need for jurisdictions to carefully evaluate the potential threats and develop tailored policy responses to protect their financial systems.
Stablecoins vs CBDCs: What Makes the Difference?
According to the Reserve Bank of India, CBDCs can provide the same benefits as stablecoins, including efficiency, programmability, and instant settlement, but with added security and credibility of being backed by a central bank. They believe that CBDCs are a more reliable option for maintaining trust in money, preserving financial stability, and designing a next-generation payments infrastructure that is faster, cheaper, and more secure. The statement read,
“The RBI, therefore, strongly advocates that countries should prioritise central bank digital currencies over privately issued stablecoins to maintain trust in money, preserve financial stability and design next-generation payments infrastructure that is faster, cheaper and secure.”
While the RBI has consistently voiced its concerns about crypto and stablecoins, citing potential risks, it has been actively promoting CBDCs. The country has already initiated pilot projects in both retail and wholesale segments. Although the rollout of a nationwide CBDC is not imminent, the RBI is taking a measured approach to exploring its potential benefits and feasibility.
