Stable coins ‘existential threat’ to policy sovereignty, CBDCs best solution for cross-border payments: RBI DG

Rabi Sankar on Tuesday went public with India's concerns on stable coins, saying that they pose an "existential threat" to most countries' policy sovereignty

Mumbai: Reserve Bank of India Deputy Governor T Rabi Sankar on Tuesday went public with India’s concerns on stable coins, saying that they pose an “existential threat” to most countries’ policy sovereignty.

“We should ideally aim for a global financial system which rests on central bank digital currencies (CBDCs) issued by each country to settle global payments, and not rely on stable coins,” Sankar said while interacting with bankers here.

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He also hit out at banks’ tendency to charge wide margins for executing cross-border remittances, saying it as “not justifiable”.

Sankar cited a World Bank study, according to which small value remittances are charged 6 per cent by banks through their corresponding banks, which is “too high”. Such a move leads to calls for reducing the costs and in-turn looking for alternatives like cryptocurrencies.

But, most countries do not buy into private cryptocurrencies like Bitcoins, Sankar said, adding that this leads to emergence of stable coins pegged to currencies like the US dollar, euro or pound sterling.

However, we need to be “careful” while opting for the stable coins, Sankar said, and pointed out that this alternative is beneficial to the country to whose currency the coins are pegged.

“If it (a stable coin) is pegged to the dollar and it is used in India, it is not so good for us… is it something we would want sitting here in India? I doubt that,” he said.

The “usual risks” associated with dollarization are back when we allow for stable coins linked to some other currency, he said in remarks that come at a time when India is pitching for higher reliance on rupee in international trade.

“If we want to maintain our capital account regulations, if we want to maintain our monetary policy independence, we have to be very careful about allowing these sort of instruments. Basic point is, stable coins can provide some of this (lower costs), but they’re only beneficial to a few countries whose currency are linked. For the vast majority of other countries, it is an existential threat to policy sovereignty,” the RBI DG said.

Sankar said CBDCs offer the best solution in such situations, and “we need a system where each country introduces a CBDC and then there is a platform on the global level where CBDCs can be used for settling trade”.

Reiterating the RBI’s concerns on the banking system’s tendencies on charging high margins for global remittances, Sankar said “we need to change our outlooks on this as technology evolves.

“…the fact that exchange margins have to be 3 per cent, 2 per cent or 0.50 per cent is a narrative that needs to change with technology,” he said.