In a compelling critique of the burgeoning stablecoin market, RBI Deputy Governor T. Rabi Sankar has championed central bank digital currencies (CBDCs) as a far more dependable alternative. Sankar’s remarks, delivered during a media conclave, unpack the fundamental flaws of stablecoins, painting them as inherently unstable and economically unsound, while unveiling the myriad advantages that CBDCs bring to the table.
The Structural Flaws of Stablecoins
Stablecoins, often marketed as a stabilizing force within the volatile crypto-market, are facing increasing scrutiny due to their fundamental design shortcomings. According to Sankar, stablecoins dismantle the critical foundations of modern money by lacking essential attributes such as “fiat backing and singleness.” As a result, he argues, these private tokens cannot serve as a reliable anchor within any financial system and pose significant risks.
Highlighting the dangers of stablecoin proliferation, Sankar warned that these digital currencies could jeopardize both financial stability and broader macro-financial systems. He lamented that they often serve speculative purposes rather than meaningful transactions, questioning their very purpose:
“Do stablecoins serve a purpose? It seems to me that they do not; at any rate, they do not serve a purpose that cannot be served better by fiat money.”
With their predominant use in crypto leverage and speculation, stablecoins further complicate regulatory oversight and market integrity.
CBDCs: Preserving Sovereignty with Digital Innovation
In stark contrast to their stablecoin counterparts, CBDCs are designed as public, regulator-issued digital currencies that uphold monetary sovereignty while integrating cutting-edge technological advancements. Sankar posits that CBDCs not only retain the trust associated with traditional fiat currencies but also offer functionalities such as tokenization, programming capability, and atomic settlement.
Moreover, he emphasized that adopting CBDCs could help prevent the leakage of public revenue to private, particularly offshore, issuers—an issue that stablecoins might exacerbate. He noted that the claimed advantages of stablecoins are not unique and that they have yet to substantiate their purported benefits.
“By their very nature, they are in many ways inferior to available forms of money in achieving those benefits,”
Sankar stated, clarifying that the future of monetary systems does not necessitate the inclusion of unstable digital currencies.
India’s Robust Digital Infrastructure as a Counterpoint
India’s current payment infrastructure, exemplified by systems like the Unified Payments Interface (UPI), Real-Time Gross Settlement (RTGS), and National Electronic Funds Transfer (NEFT), showcases the nation’s capability to handle digital transactions effectively. This well-established ecosystem raises doubts about the need for stablecoin integration, as it effectively meets the needs of its users without the complications introduced by private digital currencies.
The existing infrastructure mitigates the argument that stablecoins fill an essential void in the digital payments landscape. Instead, as Sankar insists, the frameworks already in place leave little justification for the adoption of private stablecoins. The focus, he suggests, should shift towards enhancing these existing systems rather than diluting monetary policy with unregulated alternatives.
Adoption Challenges: Anonymity and Privacy
While advocating for the digital rupee’s widespread adoption, Sankar highlighted the necessity for cash-like functionality, especially concerning anonymity for small transactions. “For CBDCs to be embraced domestically, they should mirror the properties of cash, including tiered anonymity,” he said. However, he acknowledged that achieving true cash-like anonymity within a digital framework poses significant challenges, primarily due to the digital footprint that transactions leave.
Despite the potential for technology to facilitate some level of anonymization, Sankar noted that legal frameworks would also be essential to safeguard privacy.
“It is difficult to anonymize transactions. It is possible… But more importantly, we would require a legal backing,”
he explained, underscoring that public trust is paramount for any successful digital currency initiative—particularly for programmable CBDCs with targeted applications like subsidies, where privacy issues become especially pertinent.
The Imperative for Global CBDC Networks
Sankar also introduced the idea of fostering cross-border efficiency via bilateral and multilateral CBDC corridors, suggesting that such networks could function without destabilizing existing national financial systems. He contended that wholesale CBDC transactions are particularly beneficial for international payments, thus avoiding unnecessary capital allocation for managing settlement risks.
As countries across the globe increasingly pursue CBDCs, Sankar emphasized the urgency for these digital currencies to connect and create superior use cases that outshine stablecoins. “I think it is very important for CBDCs to exist across countries and connected to each other, so that you can actually show a use case which is superior to stablecoins,” he stated, advocating for a global shift towards more stable and sovereign digital currencies.
Fostering the Future of Digital Finance
The dialogue surrounding CBDCs versus stablecoins underscores a pivotal moment in the evolution of global finance. As nations like India leverage technology to strengthen their monetary systems and preserve sovereignty, the question remains: will the world embrace a future dominated by public digital currencies or continue to indulge in the speculation of private tokens? As Sankar aptly noted, the future trajectory may very well hinge on the ability of CBDCs to outperform their private counterparts, blending innovation with the trustworthiness demanded by modern economies.
