'Stablecoins risk currency substitution'

Internationalisation of Indian rupee is not to replace the dollar but to reduce risk for Indian businesses by enabling more transactions in rupees

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Reserve Bank of India Deputy Governor T Rabi Sankar said in a fireside chat with Tamal Bandopadhyay during the Business Standard BFSI Insight Summit on Thursday. Edited excerpts:

The RBI has issued new norms for external commercial borrowing (ECB) and foreign exchange liberalisation — on foreign currency borrowing by Indian companies —removing cost caps, widening eligible borrowers and lenders, expanding end users, and raising the borrowing limit to 300 per cent. Why are we opening up so many things so fast?

■ These are not short-term measures. If you look at the RBI's stance on capital account convertibility, we have consistently said that it is a process, not an event. In this spirit, we have been gradually liberalising the capital account. Today, barring a few constraints such as cost caps and amount limits on ECBs, most inward capital flows are liberalised.

What remains more under control is the extent of outward flows, which aligns with our stage of development. Regarding ECBs, we have taken several steps over the years to simplify processes, such as allowing derivative use and commodity hedging. Trade flows are also being liberalised as part of the effort to make foreign exchange transactions smoother and more convenient.

The current ECB proposals, still in draft form, aim to ensure that only financially strong entities borrow abroad. Instead of cost caps, we now link permissible borrowing to a firm's leverage. Once this framework is finalised, cost caps and other limits may no longer be necessary. This is not a sudden move: it's the continuation of a decades-long process of gradual liberalisation. We are still in the discussion stage and will finalise the framework after reviewing feedback, likely in the next couple of months.