Source: The post “CBDCs Vs Stablecoins” has been created, based on “RBI Governor Malhotra urges other central banks to promote CBDCs over stablecoins” published in “Indian Express” on 22 October 2025. CBDCs Vs Stablecoins.
UPSC Syllabus: GS Paper -3-Indian Economy and issues relating to Planning, Mobilisation of Resources, Growth, Development and Employment.
Context: The Reserve Bank of India (RBI) has been one of the leading central banks in exploring Central Bank Digital Currencies (CBDCs) as a secure, sovereign, and regulated form of digital money. In contrast, it has repeatedly cautioned against privately issued stablecoins, which are cryptocurrencies pegged to fiat currencies like the US dollar. At the recent IMF–World Bank Annual Meetings in Washington, DC, RBI Governor Sanjay Malhotra emphasised that CBDCs are essential for efficient cross-border payments and that their benefits would fully materialise only through widespread global adoption.
About CBDCs and Stablecoins
- Central Bank Digital Currency (CBDC): A legal tender issued by a country’s central bank in digital form, representing a direct claim on the central bank. It combines the stability of fiat money with the efficiency of digital technology. Example: India’s e₹ (Digital Rupee) pilot projects in retail and wholesale segments.
- Stablecoins: It is privately issued cryptocurrencies pegged to a fiat currency (like the US dollar) or commodity to maintain a stable value. Example: USDT (Tether) and USDC (USD Coin) — together account for about 90% of the $285 billion global stablecoin market.
RBI’s Position on CBDCs
- RBI considers CBDCs as the future of regulated digital money, combining the trust and stability of fiat currency with the efficiency of digital technology.
- RBI Governor highlighted that CBDCs can be tokenised and have the advantages of both stablecoins and money while remaining under sovereign control.
- He stressed that international coordination is vital; without other countries adopting CBDCs, cross-border benefits cannot be realised.
- India has already launched pilot projects for two types of CBDCs:
- Retail CBDC (e₹-R): for general public transactions.
- Wholesale CBDC (e₹-W): for interbank settlements and large-value transfers.
- Domestic payments in India are already efficient due to UPI; hence, CBDCs are primarily aimed at cross-border use cases.
RBI’s Concerns Regarding Stablecoins
- Stablecoins like USDT (Tether) and USDC are backed by US dollar reserves and dominate global digital transactions.
- RBI fears that the widespread use of such dollar-pegged stablecoins could lead to “crypto-dollarisation” of emerging economies, undermining monetary sovereignty.
- Since stablecoins are privately issued, they pose systemic risks, including:
- Lack of transparency in reserve backing.
- Potential for money laundering and illicit financial flows.
- Difficulty in regulatory oversight and monetary policy implementation.
- Finance Minister Nirmala Sitharaman has also acknowledged that such innovations are reshaping global finance, compelling nations to adapt to avoid exclusion from the evolving monetary order.
Global Developments in Stablecoin Regulation
- United States: The Guiding and Establishing National Innovation for US Stablecoins Act (GENIUS Act) aims to regulate stablecoin issuance and link them to national currencies.
- South Korea: Passed the Digital Asset Basic Act, allowing issuance of stablecoins pegged to the South Korean won.
- Hong Kong: The Legislative Council introduced a framework to license fiat-referenced stablecoin issuers.
- These examples show that major economies are formalising frameworks for stablecoins, recognising their growing role in the financial system.
Challenges in Implementing CBDCs
- Limited Global Interoperability: Without other countries adopting CBDCs, cross-border efficiency gains remain constrained.
- Technological Infrastructure: Establishing secure, scalable, and real-time digital currency systems demands massive technological investment.
- Cybersecurity and Privacy Risks: CBDCs could become targets of cyberattacks, and data misuse may compromise user privacy.
- Legal and Regulatory Framework: Clear legal definitions, liability clauses, and dispute-resolution mechanisms are still evolving.
- Public Awareness and Acceptance: Low digital literacy and mistrust of digital money could slow adoption.
- Impact on Banking System: If people shift large deposits into CBDCs, it could reduce bank liquidity and affect credit creation.
- Cross-Border Coordination: Differences in regulatory standards across jurisdictions hinder seamless global CBDC integration.
Way Forward
- Global Coordination through Multilateral Platforms: India should work with the IMF, BIS, and G20 to develop common CBDC standards for cross-border payments.
- Gradual Phased Implementation: Continue pilot projects to identify operational challenges before full-scale rollout.
- Robust Cybersecurity Architecture: Invest in quantum-resistant encryption and data protection measures to ensure secure transactions.
- Public and Institutional Awareness: Launch educational campaigns to build trust and digital literacy among users and businesses.
- Balanced Regulation: Create a comprehensive digital currency law that addresses CBDCs and provides clarity on stablecoin use.
- Exploration of Bilateral CBDC Corridors: Partner with select countries (e.g., Singapore, UAE) to pilot cross-border CBDC transactions.
- Integration with Existing Systems: Combine CBDCs with platforms like UPI, RTGS, and SWIFT for interoperability and wider reach.
Conclusion: The RBI’s preference for CBDCs over stablecoins reflects a proactive yet cautious approach to digital financial innovation. CBDCs promise efficiency, transparency, and sovereignty, aligning with India’s broader goal of a digitally resilient economy. However, realizing their full potential requires international collaboration, robust regulation, and public trust. As the global financial system transitions toward digital money, India’s balanced stance could serve as a model for emerging economies seeking innovation without compromising monetary stability.
Question: Discuss the Reserve Bank of India’s (RBI) stance on Central Bank Digital Currencies (CBDCs) vis-à-vis stablecoins. Examine the challenges in CBDC adoption and suggest the way forward
