MUMBAI: RBI deputy governor T Rabi Sankar on Friday said that stablecoins are inherently unstable and pose major macro-financial risks, including currency substitution, dollarisation and weakened monetary-policy transmission.Sankar’s comments come at a time when US govt’s stance is broadly supportive of dollar-denominated payment stablecoins as part of the formal financial system, distinct from lightly supervised cryptocurrencies. While stablecoins are also cryptocurrencies, 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.
Speaking at the annual BFSI conclave on Friday, Sankar said that “stablecoins fail to satisfy the two defining features of modern money, viz., one, 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 said that stablecoins “lack the basic attributes of money” and could weaken India’s monetary and financial architecture if allowed to gain traction. Stablecoins, he said, are ultimately “private money”, not fiat, and therefore do not carry the sovereign backing that underpins trust in modern currency.He questioned whether stablecoins even constitute the liability of their issuers, noting that “neither of the two major cryptocurrencies 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”. Their dependence on smartphones, digital wallets and connectivity further undermines claims of expanding inclusion.The deputy governor 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.He said that stablecoins do not serve a purpose that cannot be fulfilled by fiat money. “The bigger threat is a stablecoin that works well.”
