While stablecoins play an important role in the crypto industry, and their importance has increased since the enactment of the Stablecoin Regulation Act in the United States, tokens pegged to fiat currencies do not meet the fundamental characteristics of money and could weaken the influence of central banks, the RBI fears.

"Stablecoins are positioned as an alternative form of money, but it is crucial to understand that they do not meet the fundamental requirements of sound real money—uniformity, flexibility, and integrity," the RBI said in a statement.

Given that stablecoins are issued by private fintech companies, their tokens could become unpaired from the underlying asset, resulting in significant losses for investors, officials fear. The rapid growth of stablecoins pegged to foreign currencies could lead to the replacement of these currencies and undermine countries' monetary sovereignty, the regulator stated.

The RBI urged central banks worldwide to focus on developing their own digital currencies, complaining that their adoption worldwide is too slow, unlike that of stablecoins. The Bank of India insists that CBDCs can preserve "monetary uniformity" through privacy protection, low transaction costs, and the ability to make international payments and transfers.