The rising popularity of US dollar stablecoins will be an important phenomenon next year and could raise challenges for monetary policy globally, India's Chief Economic Adviser V Anantha Nageswaran said on Wednesday.
"The presence of a dollar stablecoin will bring with it its own challenges for monetary policy, monetary transmission and for seigniorage benefits of any country," Nageswaran said at an event in Mumbai.
Seigniorage refers to the difference between the face value of money and the cost of producing and distributing it.
The presence of a widely used instant domestic payments system like the Unified Payments Interface (UPI), reduces the need for stablecoins in India as compared to advanced economies like those in the European Union, Nageswaran said.
Stablecoins will become one more source of competition for banks in terms of acting as financial intermediaries and in attracting customer deposits, he said.
U.S. dollar stablecoins have gained popularity globally on the back of friendly regulations in the U.S. and the global market capitalisation of such tokens that are pegged to the U.S. dollar has climbed to over $300 billion.
India, for its part, is leaning towards not creating legislation to regulate cryptocurrencies in the country, Reuters reported in September.
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