The Reserve Bank of India has raised fresh concerns over stablecoins and said that any crypto asset pegged to the US dollar or any other global currency could undermine the Indian rupee.
Central bank officials have raised these concerns with the government in several meetings held recently, people aware of the development said. Stablecoins are cryptocurrencies where value is derived from an underlying asset — USD or gold in most cases.
The fear is that going ahead, companies or traders could move to stablecoins even for domestic payments. The RBI has said that if stablecoins are allowed in India, they could even affect the central bank’s ability to control the currency fluctuations and volatility.
India has still not decided whether it wants to regulate or completely ban cryptocurrencies. A questionnaire sent to RBI Wednesday did not elicit any response.
The RBI has said that many exchanges are already doling out anywhere between 10% and 12% interest rates on stablecoin deposits similar to fixed deposits.
Industry trackers say that the RBI’s concerns may not be farfetched. “Currently, regulations do not allow anyone to accept USD or any other foreign currency as mode of payment for domestic transactions — whether trade or salaries. The risk that stablecoin could pose is that it could be used as a mode of payment, partial or full, and the RBI will not have any control over this,” said Amit Maheshwari, tax partner at tax consulting firm AKM Global.
Globally, regulators have been struggling to formulate policies around stablecoins because the currencies do fluctuate much more than the paired currency due to demand and supply situation on an exchange. The government is already discussing with stakeholders whether cryptocurrencies should be completely banned or whether they should be allowed in a limited way where the Reserve Bank of India will primarily regulate them.
Several finance ministry officials, the RBI, tax departments and investigating agencies including the Financial Intelligence Unit have raised concerns about how in its current form cryptocurrencies are a “systemic risk” not just to the security but even the Indian economy.
Industry trackers say that even if India were to allow cryptocurrencies such as Bitcoins, stablecoins pose the biggest risk to any country’s financial stability.
“If Indians are able to buy stablecoins and even store them then that can impact the Indian rupee to a large extent. Worse, the RBI will not have any control over such cryptocurrency and to an extent will not have visibility over how it's used and by whom, unlike in the case of buying USD directly,” said Mihir Gandhi, partner and leader, payments transformation, PwC India.