T Rabi Sankar, the Deputy Governor of the Reserve Bank of India (RBI), voiced India’s apprehensions regarding stablecoins, stressing their potential risk to the sovereignty of policy. Speaking at a banking conference, he advocated for a global financial framework reliant on central bank digital currencies (CBDCs) for international transactions, highlighting their role in fostering financial stability and autonomy. He stated, “Our goal should be to establish a global financial system founded on central bank digital currencies (CBDCs) from each nation for global payment settlements, rather than depending on stablecoins.”
Sankar harshly criticized banks for imposing substantial fees on cross-border remittances, labeling such practices as unwarranted. He referenced a World Bank report indicating that banks impose a 6 percent fee on low-value remittances through corresponding banks, which he considered excessively high. This situation has led to a push for lower remittance charges and the investigation of alternatives, including cryptocurrencies.
While acknowledging the rise of stablecoins pegged to foreign currencies, Sankar pointed out that most nations do not welcome private cryptocurrencies like Bitcoin. He raised concerns about the acceptance of stablecoins tied to foreign currencies within India, emphasizing the dangers of dollarization and the challenges they pose to policy sovereignty. Sankar warned, “To safeguard our capital account regulations and maintain our monetary policy independence, we must exercise caution in permitting such financial instruments.”
He reiterated the promise of CBDCs as the superior solution, proposing a model where every country develops its own CBDC and creates a worldwide platform for CBDCs to streamline trade settlements. Additionally, he stressed the necessity for a reformed banking perspective on high remittance margins, advocating for a narrative shift as technology advances.
Sankar’s comments reflect the RBI’s apprehensions regarding stablecoins and emphasize the crucial role of CBDCs in securing financial stability, policy autonomy, and lowering costs in cross-border operations. The RBI is actively pursuing the possibilities of CBDCs to reshape India’s financial framework.
In a different address, Sankar shared the RBI’s goals concerning its CBDC trials, involving 13 banks and around 300,000 merchants. He expressed optimism that daily transactions using CBDCs would reach one million by the conclusion of 2023. He highlighted the significance of gathering insights from a considerable volume of transactions to analyze and understand patterns.
Furthermore, Sankar indicated that the RBI is contemplating ensuring compatibility between the CBDC and the Unified Payments Interface (UPI), a widely used platform managing nearly 300 million transactions daily. This initiative is intended to boost the public’s acceptance of the CBDC. Sankar anticipated the rollout of a system enabling instantaneous settlement for merchants with CBDC accounts and offering a QR code alternative for those without such accounts by the end of July.
Emphasizing the benefits of CBDCs, Sankar reiterated the vision for enhancing cross-border transactions using CBDCs. He pointed out that this capability represents the most significant benefit of CBDCs, as the current correspondent banking framework introduces inefficiencies and elevated costs in international payments. He advocated for the establishment of CBDCs in every country, underlining the necessity for frameworks and global standards to facilitate seamless interactions between digital currencies, which would enable affordable and instantaneous cross-border transactions.
With 130 nations globally advancing towards the implementation of CBDCs, Sankar highlighted the growing global momentum in this domain. He revealed that 32 countries are in development, 46 are conducting research, 21 are piloting CBDCs, and 11 nations have officially launched their CBDCs.
During the event, State Bank of India Chairman Dinesh Kumar Khara accentuated the importance of incorporating user perspectives from rural sectors, as the current CBDC pilots do not adequately represent these areas. RBI officials clarified that a digital rupee will not accrue interest, and there was a discussion concerning a potential decline in physical currency use as CBDC acceptance expands.
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