The deputy of the Reserve Bank of India, Governor T Rabi Sankar, has suggested that the benefits of stablecoins are only primarily applicable to economies that they are linked to, and not countries like India.
Speaking at an event organised yesterday by the Indian Banks’ Association (IBA), Sankar highlighted concerns of extensive adoption of the dollars as a medium of exchange, implying that it could have implications for the country’s control over its monetary system and exchange rate stability.
“That is one aspect we have to take into account. What happens to India’s capital regulations or monetary policy. If large stablecoins are linked to some other currency, there is a risk of dollarisation,” he said.
He went on to emphasise the need for careful consideration before adopting stablecoins, stating that they could potentially undermine a country’s ability to implement its own policies.
“We have to be very careful about allowing these sorts of instruments. Stablecoins can provide some of this but they are only useful to a few countries that are linked. From the past experience in other countries, it is an existential threat to policy sovereignty.”
Unsurprisingly, Sankar advocated for central bank digital currencies (CBDCs) as a viable alternative. He said that the country had made significant advancements in the development and adoption of the digital rupee. According to him, the CBDC had reached a milestone of 1.3million registered users, of which 300,000 are merchants.
The RBI is actively engaged in the development of its CBDC and is making progress towards enabling interoperability with the Unified Payment Interface (UPI) using QR codes. By the end of this month, the RBI aims to achieve this integration, which is anticipated to significantly enhance the volume of CBDC transactions. The current level of 5,000-10,000 CBDC transactions per day is projected to rise to approximately one million transactions per day as a result of these efforts.
Rising adoption of CBDCs
CBDCs are gaining more popularity amongst central banks. A survey recently conducted by the Bank of International Settlements (BIS) projects that there will be 15 retail and nine wholesale CBDCs by 2030. It also revealed a 93% increase in CBDC interest by apex banks in 2022.
The survey which focused on 86 central banks further highlighted a common intention amongst them to collaborate with the private sector. This is already in the works as recently, the BIS and Bank of England partnered with Quant in its ‘Project Rosalinda’ – a project aimed at developing prototypes for an Application Programming Interface (API) that facilitates retail payments.
Ripple also recently partnered with the Central Bank of Colombia to help the apex bank achieve its mission of incorporating blockchain technology in its payment systems.
