MUMBAI: Stating that the official approach towards stablecoins must be guided by caution as it undermines trust in the currency and the financial system, Reserve Bank of India deputy governor T Rabi Sankar has said they also do not serve any purpose that cannot be served by fiat money as they are highly unstable.
“We already benefit from a payments landscape that is highly efficient, reliable, and robust. With UPI, RTGS, and NEFT offering fast, low-cost, and secure payment capabilities to millions of users, there is little justification for integrating stablecoins into the financial system, which are unstable and thus pose major risks to our financial system,” Sankar told an event organised by the business daily Mint in Mumbai.
His comments come at a time when Trump administration in the US is broadly supportive of dollar-denominated payment stablecoins as part of the formal financial system, distinct from lightly supervised crypto currencies. While stablecoins are also crypto currencies, they are designed to maintain a stable value, typically pegged to a fiat currency like the dollar, a commodity such as gold or a basket of assets.
Warning that stablecoins pose significant macro-financial risks, including currency substitution and weakened monetary policy, Sankar further said they lack the essential features of modern money, such as fiat status and singleness, and thus could undermine the nation’s financial architecture.
Moreover, their purported benefits are largely unproven, with domestic systems already offering superior payment solutions, he said.Stating that stablecoins are inherently unstable and thus pose major macrofinancial risks, including currency substitution, dollarisation and weakened monetary-policy transmission, Sankar further said "stablecoins fail to satisfy the two defining features of modern money: money as fiat, and two, singleness of money.
It is possible that in a stablecoin system, there would be hundreds, or more, of currencies in an economy making any such system inherently unstable."Sankar further argued that that stablecoins "lack the basic attributes of money" and could weaken our monetary and financial architecture if allowed to gain traction.
Stablecoins, he said, are ultimately "private money", not fiat money, and therefore do not carry the sovereign backing that underpins trust in modern currency. Questioning whether stablecoins even constitute the liability of their issuers, he said "neither of the two major crypto currencies in use today make such unconditional promise" to redeem at par. Their much-touted advantages-- faster cross-border transfers, broader financial inclusion and better links to the real economy-- are, he said, largely unproven.
Domestic systems like UPI already offer "fast, low-cost and reliable payments", while stablecoins remain mostly confined to facilitating "trading and leverage within the crypto market itself", the deputy governor said who is also very vocal against cryptos. Their dependence on smartphones, digital wallets and connectivity further undermines claims of expanding inclusion, the deputy governor said and warned that widespread stablecoin adoption could trigger currency substitution and dollarisation, reducing demand for the local unit.
It would also weaken monetary-policy transmission, impair capital-flow management and divert deposits away from banks, thereby raising funding costs and forcing greater reliance on central-bank liquidity. These effects, he said, would compound systemic vulnerabilities, leaving traditional policy tools less effective. Moreover, he said stablecoins do not serve a purpose that cannot be fulfilled by fiat money. "The bigger threat is a stablecoin that works well," he added.