Discussions on the viability of stablecoins have reached a fever pitch, following caution by the Reserve Bank of India’s Deputy Governor. According to T Rabi Sankar, stablecoins have the potential to infringe on the policy sovereignty of nations, particularly ones like India, as they fail to present substantial benefits to such economies.
Sankar’s view is that robust economies such as the US and Europe, to which stablecoins are tethered, reap most benefits from these digital assets. Sankar, an ardent supporter of central bank digital currencies (CBDCs), views these as a more secure alternative for countries when compared to fiat-backed stablecoins. The assertion of replacing traditional currencies such as the rupee with stablecoins within the local economies could spell a drastic shift.
Moreover, the transformative power of stablecoins goes beyond a mere reshaping of the financial landscape. Governments issuing currency could stand to lose a substantial portion of the profits to private entities. Thus, presenting a perspective that stablecoins may not just pose an economic but a socio-political puzzle as well.
Stablecoins also come with the peril of dollarization. If a large-scale adoption of stablecoins tethered to an external currency occurs, it could potentially amplify the dollar’s power. Sankar believes that this could present an “existential threat to policy sovereignty,” emphasising the need for vigilance when assimilating such instruments into economies.
The apprehensions surrounding fiat-backed stablecoins resonated with the G20, a forum where India presently holds the presidency. The international platform has shown inclination towards the adoption of jointly crafted stablecoin guidelines by the International Monetary Fund (IMF) and the FSB.
The question of regulating stablecoins is not confined to India and the G20; it is a global concern. Earlier, Hong Kong publicised its plans to structure a regulatory framework for regulating stablecoins. Meanwhile, in the US, lawmakers have put forth a draft bill that called for halting the use of cryptocurrency-backed stablecoins.
In Europe, on the other hand, stablecoin operators will be required to have a license from a national financial regulator, under the soon-to-be-imposed Markets in Crypto Assets (MiCA) regulation. The European Banking Authority is pushing stablecoin issuers to align with these imminent regulations.
It is apparent that international sentiment leans towards a need for stricter regulation of stablecoins. The future trajectory of stablecoins will hinge on the striking of a delicate balance between fostering innovation and ensuring financial stability.
Source: Cryptonews
