India's RBI Warns Stablecoins Pose Financial Risks, Advocates for CBDCs
The Reserve Bank of India (RBI) has highlighted the risks associated with privately issued stablecoins in its Financial Stability Report, cautioning that they could undermine financial stability and trust in money. The central bank emphasized that central bank digital currencies (CBDCs) should replace stablecoins to prevent systemic risks in the financial system.
RBI noted that CBDCs maintain the singleness of money and uphold the integrity of the financial system as the ultimate settlement asset and source of trust. Stablecoins, by contrast, are viewed as a growing risk, particularly in stressed market conditions, because their reserves are often tied to government bonds. This connection could trigger rapid redemptions leading to fire sales, thereby amplifying market volatility.
The global stablecoin market is projected to reach about $300 billion by the end of 2025, primarily dominated by a few issuers with reserves largely held in government bonds. The report identifies multiple risks related to stablecoins, including potential loss of their pegs, flight of deposits from traditional banks, circumvention of capital controls, and an increase in illicit financial activities. Stablecoins might also create parallel money that is not always at par with sovereign currency.
The RBI advocates for sovereign digital money, asserting that CBDCs could provide benefits such as faster payments, programmability, and instant settlement, all while preserving monetary sovereignty and financial stability.
India's financial system remains resilient, supported by domestic demand and easing inflation. Banks are well capitalized and stress tests indicate that both banks and non-bank financial companies can withstand severe shocks. However, risks persist, particularly in segments like unsecured retail lending, fintech credit, and microfinance.
On a global scale, CBDC adoption is still limited. Only a few countries have launched live CBDCs, with many others conducting pilots or research into their feasibility.
