The Reserve Bank of India (RBI) has warned that stablecoins pose several risks to emerging markets and developing economies, including currency mismatches, financial instability, and market manipulation.
The Reserve Bank of India (RBI) has been a vocal critic of cryptocurrency, but it was particularly clear-eyed about the risks of stablecoins in emerging markets and developing economies.
The RBI listed six specific problems. It stated, “The crypto ecosystem’s inherent data gaps and lack of authenticated data make it difficult to properly assess the risks to financial stability.”
The Reserve Bank of India (RBI) warned that stablecoins could pose a risk to emerging markets and developing economies (EMDEs) through currency substitution.
This is because the underlying assets of stablecoins are typically denominated in freely convertible foreign currency. As a result, large-scale stablecoin adoption could lead to currency mismatches on the balance sheets of banks, firms, and households.
The RBI is concerned that stablecoins could be used to circumvent capital flow management measures in EMDEs. This is because stablecoins are appealing to persons who wish to transfer money across borders covertly since they are not subject to the same rules as conventional currencies.
Stablecoins could undermine the banking system by providing an alternative to traditional financial services. In addition to increasing the danger of money laundering and other criminal activities, this may make it more challenging for banks to acquire capital and offer loans.
The RBI once again called for global coordination on stablecoins. The RBI is bullish on CBDC. They believe it may increase the banking system’s effectiveness and make it simpler for consumers to transfer and receive money.