India embraces stablecoins as part of modernising its financial architecture.
Finance Minister Nirmala Sitharaman has indicated that India must be ready to engage with crypto-assets such as stablecoins, marking a policy shift from caution to strategic integration in the digital-asset economy.
What are Stablecoins?
- Stablecoins are blockchain-based digital assets pegged to a stable reference such as a currency (USD, INR), commodity (gold), or basket of assets.
- They aim to maintain a consistent value over time, unlike volatile cryptocurrencies such as Bitcoin.
- Typically backed by reserves held by banks or custodians, making them less speculative and more suited to payments.
Types of Stablecoins
- Fiat-backed: e.g. USDT, USDC — pegged to fiat currency reserves.
- Crypto-backed: e.g. DAI — backed by other crypto collateral.
- Algorithmic: value stabilised through code-based supply adjustments (though riskier, as seen in the TerraUSD collapse).
India’s Approach — From Caution to Engagement
- Earlier, India’s regulatory stance was guarded, stressing risk management and macroeconomic stability.
- The 2025 policy rethink acknowledges that stablecoins can serve as payment infrastructure, cross-border remittance rails, and tools for financial inclusion.
- The shift aligns with global frameworks like:
- EU’s MiCA Regulation (Markets in Crypto-Assets) — defining reserve and disclosure norms.
- US GENIUS Act — shaping regulatory frameworks for digital assets.
Financial Architecture & New Plumbing
- In the traditional banking world, cross-border transfers are slow and fragmented.
- Stablecoins backed by blockchain rails can make such transactions instantaneous and low-cost.
- Projects like Visa’s 2025 stablecoin integration with Solana and Ethereum show how global institutions now treat stablecoins as serious financial instruments.
- Stablecoins act like the HTTP of finance — enabling seamless “plug-and-play” transfer of value.
Global and Domestic Momentum
- Institutional adoption is growing:
- Banks like J.P. Morgan and Citigroup use tokenised deposits.
- Visa and Mastercard test blockchain settlement layers.
- India’s UPI provides a natural foundation for integrating stablecoin rails, enhancing real-time cross-border interoperability.
- A regulatory sandbox could balance innovation with consumer protection and macro-prudential oversight.
Challenges & Policy Considerations
- Volatility risk (especially in algorithmic models).
- Reserve transparency and auditability.
- AML/KYC enforcement on decentralised platforms.
- Monetary sovereignty concerns — potential impact on RBI’s control over money supply and CBDC rollout.
- Need for interoperability between stablecoins, CBDCs, and traditional banking systems.