Let rupee-backed stablecoins complement RBI's CBDC

The past decade has witnessed the astronomical rise of crypto assets around the world.

- SHUCHI AGRAWAL

Their decentralized nature, transactional speed, and accessibility immediately lured users. However, the last few years have also highlighted the extreme volatility of crypto assets. For instance, in May 2021, Bitcoin's value took a plunge of around 30%. This made users and markets skeptical of crypto reliability. To counter this downside, the concept of a 'stablecoin' was devised. As the name indicates, it is a form of crypto asset that offers greater stability because its value is pegged to another asset, such as gold or a fiat currency. As stablecoins offer a hedge against the mercurial changes in value that crypto assets are notorious for, their launch marks a marriage of crypto assets with fiat currencies aimed at retaining the best aspects of both. Transactions conducted through stablecoins are instantaneous and highly accessible. Any user with an internet connection and a digital wallet can access and trade in them. This mechanism has great potential to advance financial inclusion. Stablecoins that are pegged to the US dollar are abundantly available in the market and include Tether and USD Coin. However, rupee-backed stablecoins are just beginning to make inroads in the market.

While most of these benefits are constant across stablecoins pegged to fiat currencies, a rupee-backed stablecoin presents special opportunities for India.