RBI believes stablecoins can undermine INR.
India’s central bank, the Reserve Bank of India (RBI), is apprehensive about Sstablecoins.
Stablecoins are cryptocurrencies that are backed by sovereign currencies (also known as fiat). So, they derive their value from an underlying currency. For example, USDT is a Stablecoin that derives its value from USD. Its value is pegged 1-to-1 with USD.
Therefore, 1 USDT = 1 USD.
RBI believes that the growing use of Stablecoins can undermine India’s sovereign currency INR, according to a report by Economic Times (ET).
Some people in the know revealed that RBI officials have raised this matter in several meetings.
They fear that in future, people might switch to Stablecoins even for domestic payments.
RBI opines that Stablecoins could undermine its ability to control currency fluctuations and volatility.
“Allowing Stablecoins in India is similar to allowing Indians to use another currency in India,” one of the sources said.
According to the people aware of the matter, RBI officials are of the view that Stablecoins are essentially a currency. The central bank is also perturbed about Stablecoins’ use in money laundering and drug-related payments.
Another concern is that many exchanges are offering interest on Stablecoins deposits, similar to fixed deposits. This poses a threat to the traditional banking system.
Broadly, the main concern is that the people could switch to Stablecoins from the country’s sovereign currency. In that scenario, the sovereign currency’s value could suffer.
Stablecoins are a controversial matter in other countries too. Earlier this year, Jerome Powell, the Chair of Federal Reserve, compared Stablecoins to Money Market funds and Bank Deposits. He believes Stablecoins should be regulated in the same manner.
Could Central Bank Digital Currency (CBDC) replace Stablecoins?
What do you think? Comment below.
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