RBI sees privacy risks with CBDC, but it’s safer than stablecoins, says deputy governor Sankar

The Reserve Bank of India (RBI) sees privacy concerns associated with the use of programmable central bank digital currency (CBDC), particularly for targeted benefits such as subsidies, according to deputy governor T Rabi Sankar. But the digital rupee is still much safer than stablecoins, he said.

CBDCs combine the advantages of tokenised digital money, programming capability, atomic settlement, lower cross-border frictions, while still retaining the essential attributes of sovereign currency that has fiat backing, trust and singleness, Sankar said at a fireside chat during the 18th edition of Mint’s Annual BFSI Conclave.

Still, cash-like anonymity is “unavoidable” if the digital rupee is to achieve widespread adoption, Sankar said at a fireside chat during the conclave. However, achieving such anonymity in a digital framework remains challenging, he said.

“…digital transactions always leave a footprint. It is difficult to anonymize transactions. It is possible. There are technologies which make that possible. But more importantly, we would require a legal backing,” Sankar said. “Even if it is possible to wipe out a transaction technologically, I think, at least most public institutions would not do that unless there is a legal backing to such anonymity.”

It is one of the main concerns in the US and a few other countries, he said. “We will have to build towards that anonymity to create the unique case for CBDCs for domestic use.”

A programmable CBDC is a digital form of fiat currency with built-in rules, allowing it to be automatically controlled for specific uses, locations, merchants, or expiry dates. For example, government funds could be programmed to only buy specific goods like fertilizer, ensuring they reach the intended purpose efficiently.

On the advantages of wholesale CBDC transactions, Sankar said that these will be helpful, especially in cross-border payments, as they save the huge amount of capital that banks employ in managing the settlement risk. However, there is a need for other countries to also have CBDCs.

Sankar also linked the global momentum around CBDCs to the rising prominence of stablecoins, which he described as an increasingly influential force over the past year.

“I think it is very important for CBDCs to exist across countries and connected to each other, so that you can actually show a use case which is superior to stablecoins.”

CBDCs safer than stablecoins

Sankar called CBDCs a technologically advanced and safer public alternative to stablecoins.

Encouraging CBDC adoption domestically, he said, would require making digital rupee usage “functionally similar to cash”, including offering tiered anonymity for small-value transactions.

He said that bilateral and multilateral CBDC corridors could deliver the same cross-border efficiency stablecoins promise, without destabilising national financial systems.

“Do stablecoins serve a purpose? It seems to me that they do not; at any rate, they do not serve a purpose that cannot be served better by fiat money,” Sankar said.

Stablecoins fail the fundamental tests that define modern money and pose risks far greater than the benefits their proponents claim, according to him.

Calling stablecoins inherently unstable, Sankar said India’s financial system already has fast, low-cost, and robust digital rails such as Unified Payments Interface (UPI), RTGS and NEFT, leaving “little justification” for integrating private digital currencies into the domestic ecosystem.

While stablecoins are often promoted as tools for faster cross-border transfers or vehicles to expand financial inclusion, Sankar countered these claims, saying that in reality, stablecoins continue to be used predominantly within the crypto market as instruments for leverage and speculation, rather than as everyday transactional currency.

UPI caps tough to implement

On the long-debated 30% market-share cap for third-party apps on Unified Payments Interface (UPI), Sankar flagged implementation challenges. The National Payments Corporation of India (NPCI) has already extended the deadline to 31 December 2026.

“How do you tell an entity to stop acquiring customers or transactions? It is difficult to implement without actually affecting the access of the UPI system to others,” he said.

Sankar said the central bank is encouraging others to enter the market, so that there are at least three or four other players in the space, and the market share would be more evenly distributed.

He downplayed the concerns about concentration risk, stating that UPI transactions are ultimately bank-to-bank, and users can easily switch between apps.