Reserve Bank of India believes stablecoins pose threat to policy sovereignty, supports CBDCs instead

• Reserve Bank of India's Deputy Governor voices support for CBDCs over stablecoins.
• While Tether and USDC offer insight into the state of the crypto market, economies like India prefer stable solutions like CBDCs for their policy sovereignty.
• Rabi Sankar believes the use of large stablecoins pegged to the USD poses the risk of dollarization.

The Reserve Bank of India (RBI) voiced again its positioning against the cryptocurrency industry, this time focusing on the issues of stablecoins. T Rabi Sankar, Deputy Governor at the RBI, said stablecoins pegged to the US Dollar increase the risk of dollarization.

Also read: Tether, USDC signal incoming price rally, while Circle CEO builds a case for China’s CBDC

India’s central bank prefers CBDC over stablecoins like Tether and USDC

The RBI Deputy Governor commented on the central bank’s stance on stablecoins and CBDCs in a recent event, as reported by local news platform the Hindu. Sankar explained that stablecoins are linked to underlying fiat currencies, the US Dollar in the case of USDT, and this is only beneficial to certain economies.

According to Sankar, for an economy like India that seeks to preserve its policy sovereignty, CBDCs are a better “stable solution” than stablecoins. The RBI official says that, when using stablecoins there is a risk of dollarization, which can be mitigated by developing currencies (CBDCs) that avoid the transfer of seigniorage to private issuers.

Sankar said:

We have to be very careful about allowing these sorts of instruments. Stablecoins can provide some of this but they are only useful to a few countries that are linked. From the past experience in other countries, it is an existential threat to policy sovereignty.

India is a part of the G20 forum for emerging economies. Several countries in the forum believe that stablecoins pose a threat to their monetary policy sovereignty and G20 countries have been calling for stricter regulation for digital assets. 

Stablecoins have been considered by market pundits a reliable indicator of the state of the crypto ecosystem and considered as metrics that help determine the direction of Bitcoin and altcoin prices.

Anomalies were identified in the on-chain activity of Tether and USDCoin recently, pointing at incoming volatility in Bitcoin and crypto prices. A change of stance from emerging economies and G20 nations like India could influence the adoption of stablecoins in the long term.

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