RBI sees privacy risks with CBDC, but it's safer than stablecoins, says deputy governor Sankar

Central bank digital currencies are a far safer option than stablecoins, which pose greater risks than their purported benefits, according to Reserve Bank of India deputy governor T. Rabi Sankar.

“Do stablecoins serve a purpose? It seems to me that they do not; at any rate, they do not serve a purpose that cannot be served better by fiat money,” Sankar said at the Mint Annual BFSI Conclave 2025. Stablecoins fail the fundamental tests that define modern money and pose risks far greater than the benefits their proponents claim, he said.

Central bank digital currency (CBDC) is backed by the fiat currency of a country, issued by regulators. Stablecoins are private tokens that are pegged to a currency or another asset.

Calling stablecoins inherently unstable, Sankar said that India’s financial system already has fast, low-cost, and robust digital rails such as Unified Payments Interface (UPI), real-time gross settlement (RTGS) and national electronic funds transfer (NEFT), leaving “little justification” for integrating private digital currencies into the domestic ecosystem.

While stablecoins are often promoted as tools for faster cross-border transfers or vehicles to expand financial inclusion, Sankar countered these claims, saying that in reality, stablecoins continue to be used predominantly within the crypto market as instruments for leverage and speculation, rather than as everyday transactional currency.

“To sum up, many of these benefits are neither unique to stablecoins nor have stablecoins yet established any of the benefits their proponents claim,” he said. “By their very nature, they are in many ways inferior to available forms of money in achieving those benefits.”

On the other hand, the risks they introduce to financial stability and broader macro-financial stability are extremely serious.

He also warned that widespread adoption of stablecoins, whether denominated in domestic or foreign currency, could trigger currency substitution, weaken India’s monetary policy transmission, disrupt capital account management, disintermediate banks and increase systemic vulnerabilities.

The risk of losing sovereign seigniorage to private issuers, particularly those operating offshore, is a leakage of public revenue with significant long-term implications.

CBDC safer, sovereign alternative

Sankar encouraged the usage of CBDCs, calling them a technologically advanced yet safe public alternative that preserves monetary sovereignty.

CBDCs, he said, combine the advantages of tokenised digital money, programming capability, atomic settlement, lower cross-border frictions, while still retaining the essential attributes of sovereign currency with fiat backing, trust and singleness.

Encouraging CBDC adoption domestically, he said, would require making digital rupee usage ‘functionally similar to cash,’ including offering tiered anonymity for small-value transactions.

On the international front, he also said that bilateral and multilateral CBDC corridors could deliver the same cross-border efficiency stablecoins promise, without destabilizing national financial systems.

This fits alongside India’s existing push to interlink fast payment systems such as Unified Payments Interface (UPI) with partner jurisdictions, a move he said reduces any need for private alternatives.

Privacy concerns

Sankar, however, acknowledged privacy concerns associated with programmable CBDC use cases, particularly those linked to targeted benefits such as subsidies.

A programmable CBDC is a digital form of a country's money with built-in rules, allowing it to be automatically controlled for specific uses, locations, merchants, or expiry dates, enabling smart contracts for targeted subsidies, programs, or automated escrow. For example, government funds could be programmed to only buy specific goods like fertilizer, ensuring they reach the intended purpose efficiently.

According to Sankar, cash-like anonymity is “unavoidable” if the digital rupee is to achieve widespread adoption. However, achieving such anonymity in a digital framework remains challenging.

“...digital transactions always leave a footprint. It is difficult to anonymize transactions. It is possible. There are technologies which make that possible. But more importantly, we would require a legal backing. Even if it is possible to wipe out a transaction technologically, I think, at least most public institutions would not do that unless there is a legal backing to such anonymity,” Sankar said at the fireside chat.

It is one of the main concerns in the US and a few other countries, he said. “We will have to build towards that anonymity to create the unique case for CBDCs for domestic use.”

He called wholesale CBDC transactions helpful, especially in cross-border payments as they simply save the huge amount of capital that banks employ in managing the settlement risk. However, there is a need for other countries to adopt CBDCs as well.

Sankar also linked the global momentum around CBDCs to the rising prominence of stablecoins, which he described as an increasingly influential force over the past year.

“I think it is very important for CBDCs to exist across countries and connected to each other, so that you can actually show a use case which is superior to stablecoins,” he added.