Stablecoins are a threat to political sovereignty

Stablecoins challenge financial authorities and governments globally, going even further than Bitcoin in disrupting the established monetary system. However, central bankers fear a loss of control over monetary policies and political sovereignty. To counter these challenges, Rabi Sankar offers Central Bank Digital Currencies (CBDCs) as alternatives.

Stablecoins are a threat to political sovereignty according to Rabi Sankar

Stablecoins pose a major challenge to financial authorities and governments around the world. While bitcoin led the way in challenging the established monetary system, stablecoins present themselves as an even more disruptive alternative.

Unlike volatile cryptocurrencies such as Bitcoin, stablecoins are designed to be backed by a traditional currency, such as the US dollar, to maintain value stability. This characteristic makes them attractive to many users who are looking for a more stable alternative to traditional cryptocurrencies.

However, central bankers fear that the widespread adoption of stablecoins will lead to a loss of control over monetary policies and a reduction in the political sovereignty of countries.

Indeed, the largest stablecoins generally remain backed by the US dollar and, to some extent, the euro. In the words of Rabi Sankar, Deputy Governor of the Indian Central Bank, reported recently by Coindesk, this situation can be beneficial for economies such as the United States and Europe.

However, in countries like India, the adoption of stablecoins could potentially replace the use of the rupee, which would have adverse consequences for monetary policy and capital regulation. Letting private actors manage these stablecoins could lead to a loss of government control over the issuance of currency, thereby endangering political sovereignty.

” Whether large stablecoins are linked to another currency, there is a risk of dollarization (…) We have to be very careful before allowing this kind of instruments… From past experience in other countries, it is an existential threat to political sovereignty.»

The rise of stablecoins and the stakes for monetary sovereignty

To address the potential problems posed by stablecoins, Rabi Sankar offers Central Bank Digital Currencies (CBDCs) as more suitable and stable alternatives for each country.

Central banks issue and regulate CBDCs, giving them the ability to maintain control over monetary sovereignty. According to Sankar, CBDCs could provide better financial stability and avoid the risks associated with the adoption of stablecoins issued by private players.

Sankar’s concerns echo those of other G20 member countries, of which India currently holds the presidency. Emerging economies are showing growing concern over the regulation of stablecoins, prompting heated debates between the Group of Seven (G7) and the G20, representing advanced and emerging economies respectively.

While the G7 complies with the recommendations of the Financial Stability Board (FSB) on stablecoins, which are expected this month, the G20 seeks to comply with a more nuanced summary document prepared jointly by the International Monetary Fund (IMF). ) and the FSB, which will be published later in the year.