Stablecoin has great potential to hurt emerging markets and developing economies, the Reserve Bank of India (RBI) claimed in its latest Financial Stability Report, released June 28th. The report listed six threats that the stablecoin presents.
the run batted in has been a constant critic of cryptocurrency, but he was particularly vocal about the problems he sees with the stablecoin "from an EMDE [emerging markets and developing economies] perspective." He listed six specific problems, though:
"The lack of authenticated data and the data gaps inherent in the crypto ecosystem prevent a proper assessment of financial stability risks."
A stablecoin could threaten an EMDE through currency substitution, since its underlying assets are typically denominated in a freely convertible foreign currency, the report states. The "cryptization" of the economy that could result from large-scale stablecoin adoption could lead to currency mismatches "on the balance sheets of banks, companies, and households."
News Alert | RBI Financial Stability Report: Governor Shaktikanta Das on the importance of technology, growth opportunities and global cooperation among regulators #RBIFinformeEstabilidadFinanciera #RBI @RBI @DasShaktikanta pic.twitter.com/D5dwkYcjwn
โ ET NOW (@ETNOWlive) June 28, 2023
An EMDE central bank could face problems in setting the domestic interest rate and liquidity condition due to the presence of stablecoins in the economy, the RBI continued. In addition, the "decentralized, borderless and pseudonymous characteristics of crypto assets [โฆ] turn them into potentially attractive instruments to circumvent capital flow management measuresโ.
By presenting an alternative to the domestic financial system, the stablecoin could interfere with the ability of banks to mobilize money and create credit by undermining credit risk assessment. Finally, the report said, peer-to-peer transactions are difficult to trace, which could increase the potential for their use to commit wrongdoing.
Related: India explores offline functionality of CBDCs: RBI CEO
The RBI took the opportunity to repeats its call for global coordination. He said:
โA globally coordinated approach is warranted to analyze the risks posed to EMDEs versus AEs [advanced economies]. [โฆ] In this context, under the G20 India presidency, one of the priorities is to create a framework for global regulation of crypto assets, stablecoins and unbacked DeFi.โ
The RBI has been more bullish on central bank digital currency (CBDC). He launched a wholesale digital rupee pilot project in November and a Retail Digital Rupee Pilot Project in February. Also signed an agreement with the Central Bank of the United Arab Emirates in March to study a CBDC bridge to facilitate trade and remittances.
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