Why India must not toe the US’ line on stablecoins – The HinduBusinessLine
Why India must not toe the US’ line on stablecoins
Stablecoins pose systemic risks and cannot be a substitute for an official CBDC
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BDGs’ limited scope
BDGs, or Bitcoin-based Decentralised Governance tokens, were developed in the absence of regulations around cryptos like bitcoins. They are smart contracts which do not have a single server. Each BDG has a personal wallet which executes the smart contracts.
The claim is that BDGs cannot carte blanche revoke the contracts. But a closer look at the technology and the address of these BDGs proves that they can. They can be used to alter or rewrite the contracts and wield them back as they wish. An alternative could be to make BTC wallets like other wallets used for exchanges.
Another looming concern is the potential misuse of the bitcoin funds. Once the BDGs have the final wallet, the creation of smart contracts is a one-way street.
The bottom line
Central banks and governments need to urgently wake up to the ground reality. Any quick knee-jerk reaction like issuing stablecoins can end in a systemic disaster with potentially far-reaching consequences. Crypto regulations need a certain level of skill, which will only come through experience.
If there are no such unforeseen hurdles and if the world heads towards a cashless society, the introduction of cash-similar instruments like stablecoins will undoubtedly be a necessity.
India, which has till now rightly bucked the trend of being misled by such political advises, should keep her cool this time too and not toe Trump’s line on stablecoins.
ollow the US in promoting stablecoins
It is important for India to realise that the situation in the US regarding stablecoins is driven more by motives of minting profits rather than enhancing economic stability. Accordingly, a straight adoption of the US policy with respect to stablecoins does not align with India’s interests and objectives. India has to manage and meet crucial macroeconomic and financial policy goals such as price stability, maintenance of external balance and ensuring financial stability and inclusion. Issuance of private stablecoins primarily catering to cross-border transactions in India carries an inherent risk for the economy, which the US might not be exposed to to the same extent.
Given these complex motives, there is no reason why India should follow in US’ footsteps to launch rupee backed stablecoins. The vibrant UPI backed domestic payment system is thriving in the country, making both stablecoins and CBDCs redundant for domestic payments, for now.
The Trump administration appears to be hopeful that all other countries will drop their CBDC projects and embrace dollar backed stablecoins for international payments in the future. But given the ongoing push-back against the dollar this appears highly unlikely.
According to Atlantic Council’s CBDC tracker, projects for evaluating the use of CBDCs in global trade settlement have more than doubled in recent times.
Once other trade partners of India are ready with their CBDCs, India could begin settling bilateral trade in local currencies. With the global South, led by BRICS attempting to reduce reliance on the dollar and dollar-backed settlement systems, use of dollar stablecoins is unlikely to see any traction in global trade settlements. India must therefore ignore the noise over stablecoins and GENIUS Act for now and concentrate on developing the CBDC, especially for international payments.
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The writer is a risk management specialist
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