Cryptocurrencies have no intrinsic value, says RBI deputy governor: Risks of crypto and stablecoins explained

The historical forms of money, from commodity coins (gold) to paper, and from modern electronic balances (bank accounts, UPI wallets) to digital tokens, get their credibility from intrinsic value or from a sovereign promise to pay. This is missing for cryptocurrencies, like Bitcoin, Reserve Bank of India (RBI) Deputy Governor T Rabi Sankar said while delivering his keynote address at the Mint Annual BFSI Conclave 2025 on December 12.

“...cryptocurrencies have no intrinsic value. They are not backed by a promise to pay; that is, they have no issuer. Since they do not meet the basic attributes of money, they are not money. In fact, since they do not have any underlying cash flow, they are not financial assets as well, or, for that matter, any asset at all,” Sankar said.

This is because most cryptocurrencies are not productive; they don’t represent a claim on anything real and don’t generate any income, making them entirely based on beliefs. People value cryptocurrencies only because others do. That doesn’t mean that they don’t have a price, but the fundamentals around cryptocurrencies are weak.

Additionally, crypto doesn’t have any legal issuer or any enforceable promise to pay, unlike traditional assets that involve a counterparty (that promises to pay). This is why cryptocurrencies don’t meet the basic attributes of money, as per Sankar.

Stablecoins

Stablecoins, a type of cryptocurrency designed to maintain a stable value (unlike cryptocurrencies like Bitcoin) by pegging its price to a stable external asset, usually to the US dollar or gold, using reserves or algorithms for backing, theoretically have some attributes of money, Sankar said in his address.

This is because stablecoins are backed by reserves.

“How about Stablecoins, which are cryptocurrencies against which the “issuer” holds reserves to maintain a stable value. Since they are pegged to a fiat currency, they can perform the functions of a currency. Also, as they are backed by financial or other assets, they do represent value. Therefore, they have some of the basic attributes of money,” he said.

However, he noted two major issues:

• There’s no clear legal obligation, which means issuers aren’t legally obligated to redeem stablecoins at face value.

“Is there a promise to pay? For stablecoins to be money, the issuer needs to promise to pay par value to the holder. It is not clear whether Stablecoins are the liability of their issuers. It would appear that neither of the two major cryptocurrencies in use today makes such an unconditional promise,” he said.

• If the circulation of stablecoins increases, a nation’s money supply can be undermined, making the financial system less stable.

“It is possible that in a stablecoin system, there would be hundreds, or more, of currencies in an economy, making any such system inherently unstable,” he said.

According to him, stablecoins fail to satisfy the two defining features of modern money, which are money as fiat and singleness of money.

Stablecoin-related risks

Sankar outlined some risks associated with cryptocurrencies and stablecoins:

“A core risk of stablecoins is currency substitution. Their design as currency-like instruments introduces the potential for currency substitution, particularly in emerging markets, where they could compete with domestic fiat money. Stablecoins, whether denominated in domestic currency or foreign currency, would reduce demand for the local currency and raise the risk of dollarisation,” he said.

While some countries, like the US, have passed a regulatory framework for stablecoins, India currently remains cautious and is prioritising financial stability and monetary sovereignty.

“The combination of weakened banks, reduced monetary policy effectiveness, and limited capital account management amplifies systemic vulnerabilities. Large-scale stablecoin adoption could expose domestic economies to external shocks and cross-border volatility, leaving traditional policy instruments less effective in managing financial stress,” he said.

Issues with ‘benefits’ of stablecoins

He also said that proponents of stablecoins claim various benefits of stablecoins, like improved cross-border payment efficiency and greater financial inclusion, but these claims have issues as well.

However, it’s not certain that stablecoin issuers would have the same degree of acceptability as international banks, and the efficiency of stablecoins is also doubtful when the number of users increases in the ecosystem.

However, Sankar said that the inherent instability of stablecoins means they are clearly inferior alternatives to fiat money as tools of financial inclusion.

“As stablecoins remain dependent on smartphones and digital wallets, internet connectivity and technical know-how, they may not be available to those segments of the population that are most in need of financial services,” he said.

The RBI remains cautious towards cryptocurrency and stablecoin adoption. While technologies like blockchain may be promising, the RBI says that unbacked crypto lacks real value, and stablecoins can pose serious structural risk to the country’s financial system and monetary policy.