The race is on for global digital currency ascendancy, with stablecoins and Central Bank Digital Currencies (CBDCs) at the forefront. Rabi Sankar, Deputy Governor of the Reserve Bank of India, recently asserted at an event that stablecoins pose a considerable risk to policy sovereignty, with their efficacy limited to a select number of nations. His remarks, captured by the local news source The Hindu, align with the prevailing concerns of numerous emerging economies within the Group of 20 (G20).
Rooted in Sankar’s perspective is a belief that CBDCs offer more “stable solutions” for every country. This viewpoint seems pivoted on the relationship between stablecoins, tied to international superpowers such as the U.S. and Europe, and nations like India. The potential for stablecoins to supplant the rupee is a significant point of tension. Add to that an element of financial ground loss as profits from government-issued currency can be redirected to private players. In Sankar’s words, large stablecoins tethered to another currency carry the risk of dollarization, which could unsettle India’s monetary policy or capital regulations.
This battle for control in the digital currency domain has triggered a somewhat intriguing, if not contentious, dichotomy between the Group of Seven (G7) and G20 nations. The G7 nations are positioned to align with the Financial Stability Board’s (FSB) recommendations concerning stablecoins, focused heavily on broader aspects of financial stability. Conversely, the G20, currently presided over by India, is eager to find common ground with a synthesised document. This co-production by the International Monetary Fund (IMF) and the FSB is more nuanced and set to be unveiled later in the year.
As the drama unfolds, countless questions remain unanswered. Will the digital currency environment be stirred up by the tide of stablecoins or anchored by the weight of CBDCs? Can a balance between policy protection and financial innovation be maintained or will one side inevitably yield? These are the depths that global economies are wading through, a somewhat cautious stride into the future of financial technology. To err on the side of caution, as Sankar aptly put it, could be the wiser move when dealing with such instrumental currencies.
Source: Coindesk
