Overview
- In its Dec. 31 Financial Stability Report, the Reserve Bank of India warns that widespread stablecoin use poses material risks to monetary sovereignty and financial stability.
- The central bank highlights that foreign‑currency‑pegged tokens could encourage currency substitution and weaken transmission of domestic monetary policy.
- The report cautions that stablecoins may bypass capital‑flow controls and established foreign‑exchange channels, elevating macroeconomic management challenges and enabling illicit finance without strong regulation.
- RBI notes structural fragilities and confidence‑driven failures in the sector, citing TerraUSD’s 2022 collapse and volatility during the March 2023 U.S. banking turmoil.
- As a policy response, the RBI urges countries to prioritize central bank digital currencies to deliver efficiency and instant settlement with sovereign backing, even as global CBDC adoption remains limited.