The deputy governor of the Reserve Bank of India has warned that stablecoins pose an existential threat to political sovereignty and are of no use to economies like India.
RBI Deputy Governor T Rabi Sankar opined that stablecoins are beneficial to certain economies like the US and Europe to which stablecoins are pegged, The Hindu reported.
Advocating for central bank digital currencies (CBDCs), the lieutenant governor said they are better “stable solutions” for all countries compared to fiat-backed stablecoins.
Stablecoin could potentially replace the use of the rupee in the local economy in a country like India, Sankar warned.
The RBI official noted that stablecoins transfer profits made by the government by issuing currency to private players.
Stablecoins Pose a Dollarization Risk
Expressing concern about the rising power of the dollar, Shankar said that if the large stablecoins are pegged to some other currency, there is a risk of dollarization. He added:
“We have to be very careful when allowing these types of instruments… From past experience in other countries, it is an existential threat to political sovereignty.”
Members of the G20 group, of which India currently holds the chair, had previously raised similar concerns regarding fiat-backed stablecoins.
The G20 nations are leaning towards the adoption of stablecoin guidelines produced jointly by the International Monetary Fund (IMF) and the FSB which is expected by the end of the year.
Stablecoin regulations around the world
There has been an ongoing debate on how to regulate stablecoins in all countries.
Earlier, Hong Kong revealed that it is moving forward with a regulatory framework for fiat-pegged cryptocurrencies and other traditional financial assets.
according to location reports, The Hong Kong Monetary Authority (HKMA) is currently seeking public comment on stablecoins. The financial authority aims to introduce a regulatory framework for the same by the end of 2024.
As reported in early April, US lawmakers released a draft version of a potential landmark stablecoin bill.
The bill proposed a moratorium on stablecoins like UST backed by other cryptocurrencies while calling for a study on a CBDC issued by the Federal Reserve.
In Europe, stablecoin operators will be required to hold a license from a national financial regulator in at least one member under the Markets in Crypto Assets (MiCA) regulation that will come into effect in June 2024.
The European Banking Authority urges stablecoin issuers to take immediate action to comply with upcoming regulations.
