Why India is Choosing CBDCs over Stablecoins?

If you follow financial news, you’ve likely seen the buzz surrounding "stablecoins" and the "Digital Rupee." To the casual observer, they might seem like the same thing, digital tokens that live on a phone.

In a recent keynote address, RBI Deputy Governor Shri T. Rabi Sankar laid out a compelling case for why India is leaning into its own Central Bank Digital Currency (CBDC) while remaining deeply sceptical of stablecoins.

Here is a breakdown of why this choice matters for the future of our economy and your wallet.

Who Do You Trust?

At its heart, money isn't just technology; it’s a promise. For centuries, the most stable forms of money have been backed by "sovereigns" (the State).

Stablecoins are "private money." They are issued by private companies. While they claim to be "stable" by holding reserves, history shows that private money arrangements are often fragile. If the private company fails or its reserves are opaque, your "stable" coin might not be so stable after all.

CBDCs (The Digital Rupee) are "fiat money." This is digital cash issued directly by the RBI. It carries the same sovereign guarantee as the paper notes in your wallet. When you hold a Digital Rupee, you aren't trusting a private tech firm; you’re trusting the State.

The "Singleness" of the Rupee

Think about this: a 100-rupee note in your pocket is worth the same as a 100-rupee balance in your UPI app. This is what economists call "Singleness." It ensures that trade and commerce happen smoothly because everyone agrees on what a Rupee is worth.

If we allowed hundreds of private stablecoins to circulate, we could end up with a fragmented system where different "digital rupees" have different levels of trust or value. The RBI’s choice of a CBDC ensures that the Rupee remains a single, unified unit, keeping our financial system stable.

Innovation Without the "Wild West" Risks

Proponents of stablecoins often argue they are necessary for innovation, like making cross-border payments faster or allowing for "programmable" money. A CBDC offers all the technical perks of stablecoins, such as instant settlement and programmability, but within a safe, regulated framework. Furthermore, India is already a global leader in fast payments. With UPI being linked to other countries, we are solving the "fast and cheap" remittance problem without needing the risky bypass of private tokens.

Protecting Your Access to Loans

This is a point that doesn't get enough attention: if millions of people moved their savings from bank deposits into private stablecoins, banks would lose the low-cost funds they use to provide loans.

This is called "disintermediation." If banks have fewer deposits, the cost of a home loan or a car loan for the average Indian could go up. By choosing a CBDC that is designed to act like cash rather than a high-yield investment, the RBI is protecting the banking system’s ability to fund the real economy.

Keeping Public Money in Public Hands

When a Central Bank issues currency, it earns a profit known as "seigniorage." In a democracy, this profit eventually goes to the government to be spent on public services like roads, schools, and healthcare.

Stablecoin issuers essentially "steal" this profit for their own private gain. By promoting the Digital Rupee, India ensures that the benefits of creating money stay with the public, not with private, often offshore, operators.

The "Digital Cash" Experience

One of the biggest concerns with digital payments is privacy. Physical cash is anonymous; digital transfers usually leave a trail.

The RBI is currently exploring "tiered anonymity" for the Digital Rupee. The goal is to make small, daily transactions as private as handing over a paper note, while maintaining the necessary safeguards for large-value transfers. This is a level of balanced privacy that private stablecoins cannot offer at a national scale.

The debate between stablecoins and CBDCs is not just about technology, but about who anchors our financial future. While stablecoins have pushed the boundaries of innovation by offering faster, programmable payments, they function as "private money," which carries inherent risks to financial stability and national sovereignty. The RBI’s strategic focus on the Digital Rupee (CBDC) suggests that we don’t have to sacrifice safety for progress. By capturing the efficiency of digital tokens while anchoring them in sovereign trust, India is ensuring that innovation strengthens the regulated financial system rather than bypassing it. Ultimately, the goal is to evolve the Rupee for a digital age without losing the security and accountability that only a central bank can provide.

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