Stablecoins pose serious financial stability risks: RBI FSR

Stablecoins could experience destabilising runs if holders lose confidence in their ability to redeem at par
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Stablecoins pose significant risks to financial stability due to inherent vulnerabilities, according to the Reserve Bank of India (RBI) in its latest Financial Stability Report (FSR).

The assertion that stablecoins could facilitate settlements in tokenized environments overlooks a critical weakness: as tradable instruments, their market value may fluctuate away from their pegged value. Thus, the long-term benefits of stablecoins remain uncertain, noted the RBI. Features like programmability, atomic settlement, and interoperability derive from foundational technologies (such as DLT and blockchain) rather than stablecoins themselves.

“Foreign currency-pegged stablecoins risk accelerating currency substitution and compromising national monetary sovereignty,” stated the FSR. “Easy access to dollar-linked stablecoins could trigger rapid ‘digital dollarisation,’ replacing local currencies through digital channels and network effects.”

“Widespread use of dollar-denominated stablecoins may erode monetary control and weaken domestic policy transmission. Given that monetary policy relies on influencing interest rates and money supply, the rise of stablecoins—and their impact on bank deposits—could hinder effective policy implementation.

Since 2022, stablecoins have surpassed bitcoin as the preferred medium for illicit crypto transactions. Without robust oversight, they could facilitate money laundering, terrorism financing, and other criminal activities. Their perceived price stability may heighten their appeal for illegal uses. Emerging economies face heightened exposure to these risks due to regulatory limitations.

Critical Vulnerabilities

Stablecoins threaten the economic principle of ‘singleness of money,’ where all forms of currency remain interchangeable at equal value. Privately issued stablecoins—backed by entities of varying creditworthiness—often struggle to maintain their pegs, with empirical data showing frequent price deviations.

Recent examples include the downgrade of Tether (USDT), the largest stablecoin, to a ‘weak’ rating by S&P Global Ratings. The agency cited concerns over high-risk reserve assets and transparency gaps, highlighting systemic challenges for stablecoins.

Further risks emerge from potential destabilizing runs if holders question redemption reliability. Liquidity imbalances and maturity mismatches in reserve assets could amplify shocks, transmitting instability across financial markets.

These vulnerabilities may worsen as stablecoin adoption grows amid high issuer concentration—two entities control roughly 90% of USD-linked stablecoins—and limited interoperability between competing stablecoins.

Published on December 31, 2025