Stablecoins pose existential threat to policy sovereignty, CBDC preferable: RBI
While stablecoins pegged to base currencies are more feasible than private assets and provide an alternative to digital currencies (CBDCs).Central bank digital currency), they are only beneficial to some of the economies to which they are connected, according to RBI Deputy Governor T Rabi Sankar.
Stable currencies provide international benefit, especially to linked economies such as the United States and Europe, but are not necessarily good for countries like India due to the transfer of bonds to private issuers to the extent that they replace the use of the rupee in the economy.
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“This is an aspect that we have to take into account. What happens to capital regulations or monetary policy in India. If large stablecoins are pegged to another currency, there is a risk of dollarization,” Sankar said at an event organized by the IBA.
“We have to be very careful about allowing these kinds of tools. Stablecoins can provide some of this but are only beneficial to a few connected countries. From past experiences in other countries, it is an existential threat to the rule of politics.
He then said that a stable solution is for each country to have its own central bank digital currency and for the countries to then create a mechanism through which they can interact and transact with each other, adding that while central bank digital currencies are used as a policy tool in many jurisdictions, RBI has no plan to do so.
cross border transactions
on use cases CBDCThe same is required for global transactions if nothing else, Sankar said, adding that cross-border transactions are the biggest emerging use case right now.
“The current global payment system…the existing matching banking arrangement has features that increase inefficiency,” he said.
This is because there are only a few entities through which all transactions are routed, which translates to higher costs for even cross-border money transfers of small value, and so the system needs to diversify.
The World Bank estimates that the transaction of small cross-border remittances is 6 percent. This is too high. “
Urging banks to change their remittance structure, Sankar said that due to the technology and innovation available today, banks can no longer justify high foreign exchange margins and remittance fees.