Stablecoins fail core tests of money: RBI

The Reserve Bank of India has said stablecoins fail the core tests of money -- 'singleness, elasticity and integrity' of payments -- while reiterating that such virtual digital assets pose jurisdictional and financial stability risks.

The banking regulator said that Central Bank Digital Currency (CBDC) instead offers similar efficiencies without the risks that are associated with stablecoins.

'The traditional monetary system, globally, rests on a two-tier banking system, wherein the central bank money-based settlement forms the edifice, while commercial banks can issue money which is beyond their reserves held, as the central bank can always provide liquidity for settlement, preventing a gridlock scenario,' the RBI said in its Payments Systems Report.

It added that this system ensures singleness of money, with the various money forms convertible at par without any questions, extends elasticity by way of central banks providing liquidity in excess of deposits, ensuring seamless settlement, and maintains integrity of payments.

'The stablecoins do not pass the said tests of singleness, elasticity, and integrity,' it explained.

The RBI said that CBDCs are fiat, ensure singleness of money, and preserve seigniorage income of the central banks, backed by sovereign guarantee, with no risk of fragmentation that the private issuance of stablecoins represents.

-- Ajinkya Kawale, Business Standard