India’s central bank has delivered one of its clearest warnings yet on the risks posed by stablecoins, arguing that private digital currencies could undermine monetary sovereignty, weaken financial stability, and accelerate informal dollarisation. In its Financial Stability Report for December 2025, the Reserve Bank of India positions central bank digital currencies as a necessary public counterweight to the growing influence of privately issued digital money.
The report arrives as stablecoins continue to expand globally, both in market capitalisation and in their use for cross-border payments. For the RBI, this growth is not a neutral technological development but a structural challenge to how money, payments, and capital flows are governed.
Stablecoins as a systemic risk
A dedicated special feature in the report focuses on the financial stability implications of stablecoins. The RBI highlights their increasing role in cross-border flows, particularly during periods of market stress, when users seek perceived safety outside domestic financial systems. In emerging economies, this dynamic risks amplifying capital flight and exchange rate volatility.
The report also raises concerns about deposit substitution. As stablecoins become easier to access and transact, households and firms may shift funds away from bank deposits. That, in turn, could impair banks’ funding models and weaken the transmission of monetary policy.
Even asset-backed stablecoins are not viewed as risk-free. The RBI points to vulnerabilities around reserve composition and liquidity, noting that large-scale redemptions could force issuers to rapidly liquidate short-term government bonds. This creates a direct transmission channel from crypto markets into sovereign debt markets, with potential spillovers during stress events.
Another concern is regulatory fragmentation. Stablecoins operate across borders, often under uneven or incomplete supervision. The RBI warns that this opens the door to regulatory arbitrage, complicating enforcement of capital controls, anti-money laundering rules, and consumer protection standards.
CBDCs as a policy response
Against this backdrop, the RBI frames central bank digital currencies not as experimental technology but as essential public infrastructure. CBDCs are presented as a way to preserve trust in sovereign money while accommodating digital innovation under regulatory oversight.
The report aligns with a growing view among central banks that CBDCs can help anchor the monetary system as payments become increasingly tokenised and platform-based. By offering a digital form of central bank money, authorities can provide a risk-free settlement asset that limits the systemic footprint of private digital currencies.
Importantly, the RBI stresses that CBDC design must be cautious. Issues such as bank disintermediation, data protection, and operational resilience remain central. The digital rupee is therefore positioned as complementary to cash and bank deposits, not a replacement for them.
Why this matters for Europe
While the report focuses on India, its conclusions resonate strongly in Europe. The European Central Bank has repeatedly justified the digital euro as a response to the growing role of stablecoins and foreign payment platforms. The RBI’s analysis reinforces that logic, framing CBDCs as a defensive tool to protect monetary sovereignty in a fragmented digital landscape.
The Indian case also illustrates how concerns differ between jurisdictions. For emerging economies, stablecoins raise acute risks around dollarisation and capital flight. For Europe, the risks are more about strategic autonomy, payment system resilience, and dependence on non-European providers. Yet the underlying question is the same: who controls digital money.
As global regulation of stablecoins remains uneven, central banks appear increasingly aligned on one point. Leaving the future of money entirely to private issuers is no longer seen as a viable option.