Stablecoins are not superfluous: They play a useful signalling role

These tokens reveal our fear of missing out and beliefs as digital creations join the world of finance

- SRINATH SRIDHARAN & ANAND VENKATANARAYANAN

The Reserve Bank of India's deputy governor T. Rabi Sankar recently responded to a question at a Mint conference on whether stablecoins have a role in the financial system by saying they serve no purpose that fiat money cannot serve. We respectfully disagree. Stablecoins do serve a role within today's fiat-money system—not by replacing it, but by placing a wrapper of imagined stability over it.

That this wrapper is thin need not concern us for now. Demand for 'stability' allows us to picture an alternative world of finance. Fiat currencies, backed by nothing more than the word ('IOU') of a nation state, have always embodied a power asymmetry. The history of nation states and empires is littered with examples of sovereign defaults on obligations or currency debasement, often via hyperinflation. Fiat currencies, and even their gold-backed predecessors, have always been prone to bouts of instability.