Widespread adoption of stablecoins could pose risk to monetary sovereignty, says RBI

Mumbai: The Reserve Bank of India (RBI) on Wednesday warned that the widespread adoption of stablecoins could pose serious risks to India’s monetary sovereignty and financial stability, reiterating its cautious stance on crypto assets.

In a Special Feature published in its bi-annual Financial Stability Report, the central bank said stablecoins carry inherent vulnerabilities that can undermine trust in money, which it described as the cornerstone of financial stability. Stablecoins have become a key part of the crypto asset ecosystem, gaining prominence after regulatory clarity emerged in some global jurisdictions.

The RBI cautioned that large-scale use of foreign currency–denominated stablecoins could erode monetary control and weaken the transmission of domestic monetary policy. As they increasingly position themselves as an alternative form of money, stablecoins fall short of the essential attributes of a sound monetary system—singleness, elasticity and integrity, it said.

Reaffirming its position, the RBI said central bank money preserves the integrity of the financial system and must remain the ultimate settlement asset and anchor of trust. Central bank digital currencies (CBDCs), it argued, can deliver the benefits often claimed by stablecoins—such as efficiency, programmability and instant settlement—while retaining the credibility and safety of sovereign money.

The central bank said it strongly advocates prioritising CBDCs over privately issued stablecoins to maintain trust in money, preserve financial stability and build faster, cheaper and secure next-generation payments infrastructure.

At present, the RBI noted, the macrofinancial risks posed by stablecoins outweigh their purported benefits. Their short history has been marked by episodes of volatility, confidence shocks and structural fragilities, which can intensify risks during periods of market stress.

The RBI also flagged concerns that stablecoins could circumvent capital flow controls, complicating macroeconomic management—an issue of particular relevance for emerging economies like India. Such assets, it said, can be misused to bypass existing foreign exchange channels, undermining capital flow management frameworks.

Additionally, the RBI warned that without robust regulation, stablecoins could be exploited for money laundering, terrorism financing and weapons proliferation. It cited past disruptions, including the collapse of TerraUSD in May 2022 and volatility during the March 2023 US banking turmoil, as evidence of their

instability.