Reserve Bank of India Has Reservations About Stablecoins

India’s central bank is reportedly taking a cautious stance on stablecoins and other cryptocurrencies.

“Stablecoins, cryptos, they have a huge risk, and so we are adopting a very cautious approach towards it,” Reserve Bank of India Governor Sanjay Malhotra said Thursday (Nov. 20) in a lecture at the Delhi School of Economics, Reuters reported Thursday.

Additionally, V. Anantha Nageswaran, India’s chief economic adviser, said at an International Monetary Fund and World Bank event last month that the increasing popularity of dollar-backed stablecoins will become a key phenomenon next year and could lead to challenges for monetary policy globally, per the report.

Dollar-backed stablecoins now have a market capitalization of more $300 billion, while the overall market cap of crypto tokens has surpassed $4 trillion, the report said, citing data provider CoinGecko.

Malhotra said the RBI wants to promote its central bank digital currency before stablecoins or cryptocurrencies, according to the report. He said the government must have the final say in whether cryptocurrencies should be regulated in India.

“There is a working group that was set up earlier, and they will take a final call as to how, if at all, crypto is to be handled in our country,” Malhotra said, per the report.

India prefers not to create legislation to regulate crypto and will instead maintain partial oversight out of concern that integrating the assets into mainstream finance could pose a systemic threat, the report said.

Malhotra’s comments came one day after the Financial Stability Board announced plans to increase its focus on stablecoins and nonbank financial intermediation (NBFI), two areas that it said could present vulnerabilities in the world financial system.

At a meeting this week in Saudi Arabia, FSB members called for continued close monitoring of the connections between crypto assets and stablecoins and the wider financial system.

“Stablecoins may improve payment speed and efficiency, but they raise a number of vulnerabilities, including run risk and regulatory challenges associated with multi-jurisdiction issuers of stablecoins, which require continuing attention,” the FSB said in a Wednesday (Nov. 19) news release.

Also this week, Erik Thedéen, chair of the Basel Committee on Banking Supervision, gave an interview to the Financial Times in which he said “a different approach” is required on the global rules for banks’ cryptocurrency holdings. However, he added that this would be difficult to achieve due to “different views” among regulators.