The Reserve Bank of India has once again raised serious concerns about the growing influence of stablecoins, warning that fiat backed cryptocurrencies could threaten India’s monetary sovereignty and financial stability. As digital assets evolve and gain global traction, the central bank has made it clear that privately issued digital money is not just a technological innovation but a potential challenge to the foundations of a country’s financial system.
Stablecoins are often marketed as safer alternatives to volatile cryptocurrencies because they are pegged to traditional fiat currencies such as the US dollar. However, the RBI believes that this perceived stability masks deeper risks. When stablecoins are backed by foreign currencies, their widespread use in domestic transactions could weaken demand for the Indian rupee. Over time, this could reduce the central bank’s ability to manage money supply, control inflation, and effectively transmit monetary policy across the economy.
Another major concern highlighted by the RBI is financial stability. The rapid growth of stablecoins and their increasing links with traditional financial markets can create new channels for systemic risk. If confidence in a large stablecoin issuer were to collapse, it could trigger sudden redemptions and liquidity stress that spill over into banks and financial institutions. The opacity around reserve management and governance of some stablecoin issuers only amplifies these fears.
The RBI has also pointed out that stablecoins may disrupt the banking system by diverting deposits away from banks, thereby affecting their ability to lend and support economic growth. In addition, stablecoins can potentially bypass existing foreign exchange regulations and capital controls, making it harder for authorities to monitor cross border flows and safeguard macroeconomic stability.
Beyond economic risks, there are regulatory and security concerns. Without robust oversight, stablecoins could be misused for money laundering, terror financing, and other illicit activities. The borderless nature of crypto assets makes enforcement even more challenging, especially for emerging economies that are still strengthening their digital financial frameworks.
In contrast to private stablecoins, the RBI has consistently advocated for central bank digital currencies as a safer and more reliable alternative. A digital rupee, issued and backed by the central bank, can deliver the benefits of digital payments and innovation while preserving trust, stability, and sovereign control over money. From the RBI’s perspective, public digital money is better suited to serve the long term interests of the economy than privately issued crypto tokens.
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