Central bank officials have raised these concerns with the government in several recent meetings, people familiar with developments said.
Stablecoins are cryptocurrencies whose value is derived from an underlying asset – USD or gold in most cases.
The fear is that in the future, companies or traders may switch to stablecoins, even for domestic payments.
The RBI said that if stable coins were allowed in India, they could even affect the central bank’s ability to control currency fluctuations and volatility.
India has yet to decide whether it wants to regulate or ban cryptocurrencies altogether.
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A questionnaire sent to RBI on Wednesday did not elicit a response.
The RBI said many exchanges are already distributing between 10% and 12% interest rates on stable deposits similar to fixed deposits.
Industry trackers say the RBI’s concerns may not be overstated.
“Currently, regulations do not allow anyone to accept the USD or any other foreign currency as a method of payment for domestic transactions, be it trade or wages. The risk that stablecoin might pose is that if people in India start using USD backed stablecoins as a form of payment, partial or full, it can undermine the value of Indian currency and the RBI will have no control over it, ”said Amit Maheshwari, tax partner of AKM Global tax consultancy.
Globally, regulators are struggling to formulate policies regarding stablecoins as currencies fluctuate much more than matched currency due to the demand and supply situation on an exchange.
The government is already discussing with stakeholders whether cryptocurrencies should be banned altogether or whether they should be allowed in a limited way where the Reserve Bank of India will primarily regulate them. Several officials from the Ministry of Finance, the RBI, tax services and investigative agencies, including the Financial Intelligence Unit (FIU), have raised concerns about how, in their current form, crypto currencies pose a “systemic risk” not only to security but even to the Indian economy, ET reported on December 11.
Industry trackers say that even if India allowed cryptocurrencies such as Bitcoins, stablecoins pose the greatest risk to the financial stability of any country.
“If Indians can buy stablecoins and even store them, it can have a huge impact on the Indian rupee. Worse yet, the RBI will have no control over such a cryptocurrency and to some extent will not have visibility into how it is used and by whom, unlike directly buying USD ” said Mihir Gandhi, Partner and Head of Payments Transformation, PwC. India.
According to people familiar with the development, RBI officials have said that stablecoins are essentially a currency.
Officials said RBI had concerns as it was a digital currency used around the world for money laundering and drug-related payments.
“Allowing stablecoins in India is like allowing Indians to use another currency in India,” said one of the people familiar with the development.
Indian crypto investors are looking to stablecoins that are pegged to real-world currencies like the UD dollar as a hedge against the increasing volatility of Bitcoin and other alternative coins like Ethereum, Solano, Polkadot, and Shiba Inu, so too. that the Indian government is preparing to regulate or ban crypto assets, ET wrote on December 14.
Stable coins like Tether (USDT), USD Coin (USDC) and Binance (BUSD) pin their value to the US dollar with a conversion rate of 1: 1 and are designed to keep the value stable.
Globally and in India, crypto exchanges are experiencing increasing cryptocurrency volatility as bulls and bears fight in the market and over-regulation continues to haunt the industry.
The RBI has vehemently opposed the legalization of cryptocurrencies in India.
Previously, the RBI had also raised concerns about DeFi apps and projects and sought legal advice on how they would work, said two people familiar with the development.