Stablecoins are blockchain-based digital assets designed to maintain a consistent value over time. Until recently, India’s approach to stablecoins was cautious. But India’s financial landscape is undergoing a paradigm shift. Read here to learn more.
After years of cautious scepticism toward crypto assets, the Finance Minister, Nirmala Sitharaman, recently stated that India must be ready to “engage with crypto assets such as stable coins” as part of its evolving financial architecture.
This signals a calibrated shift, from viewing crypto purely as a risk, to exploring regulated innovation in blockchain-based finance.
In October 2025, the RBI Governor urged global central banks to prioritise the development of Central Bank Digital Currencies (CBDCs) over stable coins, citing the need to preserve monetary sovereignty, regulatory stability, and trust in financial systems.
What are Stablecoins?
They are Blockchain-based digital assets designed to maintain a stable value over time.
- The objective is to reduce volatility typical of cryptocurrencies (like Bitcoin, Ethereum).
- It is pegged to reserve assets such as fiat currency (e.g., USD, INR), commodities (e.g., gold), or algorithmic mechanisms.
- It operates on decentralised blockchain networks, enabling peer-to-peer transactions.
- Some notable global examples include USDT (Tether), USDC (Circle), DAI (MakerDAO), and EUR (Euro-based stablecoin).
Types of Stablecoins
Type |
Backing Asset |
Example |
Fiat-collateralized |
Backed 1:1 by fiat reserves (USD, INR, EUR) |
Tether (USDT), USDC |
Commodity-backed |
Pegged to gold, oil, or other commodities |
PAX Gold (PAXG) |
Crypto-backed |
Secured by other cryptocurrencies (over-collateralised) |
DAI |
Algorithmic |
Value maintained via supply-demand algorithms (no external collateral) |
TerraUSD (UST) – collapsed in 2022 |
Why Stablecoins Matter in Modern Finance
- Cross-Border Payments: Enable instant, low-cost remittances, crucial for India, which receives the world’s largest remittance inflows (approximately $125 billion in 2024).
- Financial Inclusion: Offer a digital alternative for unbanked populations, integrating them into the global economy.
- Decentralised Finance (DeFi): Serve as liquidity and collateral in DeFi applications.
- Reduced Transaction Costs: Lower friction in settlements compared to SWIFT or RTGS.
- Support for CBDCs: Act as a testing ground for Central Bank Digital Currencies (CBDCs) by showcasing real-world use cases of programmable money.
India’s Approach to Stablecoins
Phase |
Key Policy Stance |
2018–2021 (Cautionary Phase) |
RBI ban on banks dealing with crypto (later overturned by SC in 2020). Stable coins are grouped under “Virtual Digital Assets (VDAs)” in the taxation framework (2022 Union Budget). |
2022–2023 (Regulatory Realignment) |
India used its G20 Presidency to push for global crypto coordination via IMF-FSB Synthesis Paper, recommending risk-based regulation. |
2024–2025 (Engagement Phase) |
FM’s statement signals openness to exploring stablecoins as part of India’s modern financial infrastructure, under RBI and SEBI oversight. Pilot regulatory frameworks are likely under the Financial Stability and Development Council (FSDC). |
Regulatory and Institutional Framework
Regulator / Institution |
Role |
RBI (Reserve Bank of India) |
Oversees monetary stability, systemic risk, and potential integration with Digital Rupee (CBDC). |
SEBI |
Regulates investment-based stable coin products or tokenised assets. |
Ministry of Finance |
Coordinates national policy and global standard-setting participation (via G20, FSB, IMF). |
FIU (Financial Intelligence Unit) |
Ensures AML/CFT compliance under the Prevention of Money Laundering Act (PMLA). |
Challenges and Concerns
- Regulatory Uncertainty: Lack of global consensus; unclear classification between currency, commodity, or security.
- Financial Stability Risks: Mismanagement of reserves can trigger liquidity crises (e.g., 2022 Terra collapse).
- Monetary Sovereignty: Unregulated stablecoin circulation could weaken the RBI’s monetary control.
- Consumer Protection: Risk of fraud, hacking, or misinformation in unregulated crypto markets.
- Cross-Border Risks: AML, terror financing, and sanctions evasion via unmonitored digital flows.
India’s Roadmap Towards Regulated Stablecoins
Measure |
Implementation Strategy |
Regulatory Sandbox (RBI & SEBI) |
Controlled pilots to test stablecoin-backed payment systems. |
Integration with CBDC |
Interoperability between Digital Rupee and regulated rupee-backed stablecoins. |
Reserve Transparency Norms |
Mandatory third-party audits of collateral reserves. |
Licensing Framework |
Permit only registered financial institutions to issue INR-backed stablecoins. |
Cross-Border Payment Pilots |
Collaboration with UAE, Singapore, and Japan for blockchain-enabled remittances. |
Global outlook
- U.S: Considering Stablecoin Bill (2025); regulation under Federal Reserve oversight.
- EU: Implemented MiCA (Markets in Crypto Assets) regulation with strict reserve requirements.
- Singapore: Progressive framework under the Payment Services Act; testing tokenised deposits.
- Japan: Legalised yen-pegged stablecoins under banking regulations (2023).
- China: Banned stablecoins, focusing on state-controlled Digital Yuan (e-CNY).
Way Forward for India
- Adopt a “Risk-Proportionate” Regulatory Model, balancing innovation and consumer safety.
- Pilot INR-backed stablecoin Projects under RBI oversight for domestic and cross-border settlements.
- Enhance Financial Literacy on digital assets through RBI and NPCI initiatives.
- Leverage BIS Innovation Hub Collaborations for blockchain interoperability.
- Link Stablecoin Development to Digital Public Infrastructure (DPI), UPI, ONDC, and Account Aggregator frameworks.
Conclusion
Stablecoins represent the next frontier in digital finance, blending the innovation of crypto with the stability of fiat money.
India’s evolving policy stance, from caution to calibrated engagement, signals its ambition to lead in regulating, innovating, and integrating digital financial ecosystems aligned with Viksit Bharat 2047 and Digital India goals.
Related articles:
Don’t miss out!
Leave a Reply