RBI lists risks of stablecoin for developing economies, calls for global regulation

The Reserve Bank of India (RBI) has argued in its latest financial stability report that stablecoins could have a significant negative impact on emerging markets and developing economies. liberated June 28th. The report lists six threats posed by stablecoins.

While the RBI has been adamantly critical of cryptocurrencies, it has specifically articulated the problems seen with stablecoins in its “View from EMDE”. [emerging markets and developing economies] perspective. “However, the following six specific issues of his are listed.

“The lack of authenticated data and inherent data gaps in the cryptocurrency ecosystem hinder a proper assessment of financial stability risks.”

Stablecoins could threaten EMDE through currency substitution, the report argues, because the underlying assets of stablecoins are generally denominated in freely convertible foreign currencies. The potential “cryptocurrency” of the economy caused by large-scale stablecoin adoption could lead to currency discrepancies “on the balance sheets of banks, businesses and households.”

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Due to the presence of stablecoins in the economy, the EMDE central bank may face problems in setting domestic interest rates and liquidity conditions, the Reserve Bank of India continued.Furthermore, the “decentralized, borderless and anonymous” characteristics of crypto-assets […] They represent a potentially attractive means of circumventing capital flow management measures. ”

By offering an alternative to the domestic financial system, stablecoins can impede banks’ ability to mobilize funds and create credit by undermining credit risk assessments. Finally, the report says peer-to-peer transactions can be more difficult to track, making them more likely to be used for fraudulent activities.

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The RBI took this opportunity to reiterate its call for global cooperation. said:

“A globally coordinated approach is warranted to analyze the risks posed to EMDE compared to AE.” [advanced economies]. […] In this context, one of the priorities under India’s G20 Presidency is to create a global regulatory framework for unbacked cryptoassets, stablecoins and DeFi. ”

The RBI has taken a more bullish stance on Central Bank Digital Currencies (CBDC). The company launched a wholesale digital rupee pilot project in November and a retail digital rupee pilot project in February. It also signed an agreement with the Central Bank of the United Arab Emirates in March to consider a CBDC bridge to facilitate trade and remittances.

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