In a bold affirmation of its monetary policy position, the Reserve Bank of India (RBI) has reiterated its resolute rejection of stablecoins and cryptocurrencies, highlighting potential risks to national sovereignty. Deputy Governor T Rabi Sankar unveiled the bank’s cautious strategy for the Central Bank Digital Currency (CBDC) while aiming for the internationalization of the Indian rupee in an address that has set the tone for India’s digital currency future.
The Dangers of Stablecoins
During the recent Business Standard’s BFSI Summit, Deputy Governor T Rabi Sankar articulated the RBI’s fears surrounding stablecoins, which, despite being asset-backed, pose significant risks. The potential for these alternative currencies to undermine traditional monetary authority, especially in developing economies, is a central concern. “We are very clear in our mind that stablecoins do not serve a purpose that cannot be done better with CBDC. Introducing stablecoins would create a lot of policy concerns and issues that are best avoided,” Sankar asserted.
The RBI views stablecoins as not just unnecessary but as tools that could threaten the existing financial system. In an emergent economy like India, where safeguarding policy sovereignty is critical, the appeal of asset-backed currencies is vastly overshadowed by the potential fallout of destabilization. Sankar reinforced this viewpoint by stating, “…the risks of stablecoins… carry a huge risk of replacing your currency and your policy sovereignty,” underlining the RBI’s commitment to steer clear of these digital assets.
Strategizing the CBDC Rollout
In lieu of stablecoins, the RBI is focusing its efforts on the digital rupee, initiating a careful, well-paced rollout strategy. The bank has recorded over 10 crore transactions in its two-year e-rupee pilot, underscoring its operational readiness. Yet, Sankar emphasized that the RBI would not hasten the CBDC rollout. “Many countries are experimenting with CBDC. We do not want to rush or launch it full scale because everyone globally is just starting off. The use cases are still very different and limited,” he noted, highlighting the importance of stability and careful assessment in this nascent landscape.
The anticipated benefits of CBDC extend beyond mere digital payment solutions; enhanced cross-border transaction efficiency poses a promising advantage. “In the cross-border space, there is absolutely no improvement as such. It still takes four to five days for settlement and five to six percent cost of transaction,” Sankar pointed out. The RBI sees CBDCs as a solution that could fundamentally transform these transactions.
A Vision for Rupee Internationalization
Central to the RBI’s long-term agenda is the internationalization of the Indian rupee—a strategy designed to boost trade and capital flows without fully embracing capital account convertibility. This journey is viewed as a necessity rather than an option for the Indian economy to thrive globally. “Economic activity will not suffer because of liquidity reasons,” reassured Sankar, reflecting the RBI’s proactive stance in mitigating risks associated with local liquidity challenges.
The RBI’s immediate focus is to liberalize external commercial borrowings, which is expected to stimulate capital inflows. Such initiatives illustrate the central bank’s commitment to fostering an environment conducive to trade expansion and economic stability, even as they map out a careful path towards rupee globalization.
Not-So-Common Ground on Cryptocurrencies
The RBI’s unwavering stance on cryptocurrencies remains unchanged, irrespective of international shifts or trends. As various countries revise their approaches towards digital assets, the Indian central bank stands firm on the view that cryptocurrencies are unnecessary and do not contribute to the economy’s financial ecosystem. “Our understanding of crypto will not change because some policy has been taken by some country on it,” Sankar emphasized, signaling a commitment to a consistent regulatory framework.
The RBI is currently evaluating its approach to cryptocurrencies, with a group tasked to devise recommendations for the government. This careful scrutiny is intended to provide a robust framework that addresses public interests while leveraging potential innovations without compromising economic integrity.
Charting a Path Forward for Digital Currency in India
As India navigates through the complexities of digital finance, the RBI’s measured approach to CBDC and categorical rejection of stablecoins paints a picture of cautious optimism. By prioritizing the internationalization of the Indian rupee alongside a meticulously thoughtful CBDC rollout, the RBI aims to secure its monetary sovereignty while enhancing the economic landscape for all stakeholders involved.
For India, the transition to a digital financial ecosystem is not just about embracing new technologies—it’s about ensuring that these innovations serve the long-term goals of stability and growth. As the global financial community watches closely, the Indian central bank’s actions may well set precedents for how emerging economies can balance tradition with innovation, safeguarding the interests of their citizens in a rapidly evolving landscape.
