From Dollarisation Risk to Rupee Leadership: India’s Stablecoin Imperative
A regulated INR stablecoin is essential to protect monetary policy and shape the future of cross-border finance
A background note can be accessed here: IMF Flags Policy Risks and Opportunities of Stablecoins in Global Finance
Hardeep Singh: Vice President, Public Policy & Government Affairs, CoinDCX
SDG 9: Industry, Innovation and Infrastructure
Institutions: Ministry of Finance | Reserve Bank of India
The IMF notes that widespread use of stablecoins could drive currency substitution and weaken monetary-policy transmission. In India’s context – given the CBDC pilot, the dominance of UPI, and a growing fintech ecosystem – what behavioural or financial-stability risks does a large stablecoin footprint pose for monetary sovereignty, trust, and inclusion?
A large stablecoin footprint, especially one dominated by foreign-currency tokens like a digital USD, creates real behavioural and financial-stability risks for India. The biggest concern is currency substitution. If users begin saving or transacting in dollar-backed stablecoins, the RBI’s ability to transmit monetary policy weakens, inflation control becomes harder, and monetary sovereignty erodes. This risk is not abstract: US legislative moves like the “Genius Act” signal a clear strategic intent to expand the global reach of a digital dollar.
For India, the threat is amplified by its young, crypto-native population and already high levels of digital-asset adoption. Once users experience the convenience and perceived safety of USD stablecoins, reversing that behavioural shift becomes difficult. The longer India waits to act, the deeper these foreign digital currencies may become embedded.
Ultimately, the strongest defence against currency substitution is economic resilience: a strong, stable, fast-growing economy that gives households no reason to hold foreign currency, digital or otherwise.
But resilience also requires strategy. Domestically, India should continue strengthening UPI and scaling the e₹ pilot. Internationally, it needs to build an INR-backed, regulated stablecoin to support cross-border payments and advance the long-term goal of rupee internationalisation.
Stablecoins offer benefits for cross-border payments and fintech innovation, but also carry risks related to reserve adequacy, redemption, volatility, and illicit flows. What regulatory architecture should India consider to balance innovation with safeguards?
Stablecoins can certainly boost cross-border payments and support fintech innovation, but India needs a regulatory architecture that is both enabling and firmly risk-proofed. The foundation should be robust reserve norms: 1:1 backing with high-quality liquid assets, frequent independent audits, and transparent disclosures aligned with global standards such as those of the Financial Stability Board and emerging rules in jurisdictions like the US and UAE. Blockchain-based reporting can further strengthen trust by making reserve composition verifiable in real time.
Interoperability is equally critical. An INR-backed regulated stablecoin should plug seamlessly into India’s domestic rails – UPI and the CBDC (e₹) ecosystem – while also being outward-facing for cross-border trade and remittances. This dual design would allow India to innovate without fragmenting its payments landscape.
At the same time, guardrails are essential. A prudent macro-prudential step is to restrict the domestic retail use of foreign-currency stablecoins, allowing them only for authorised cross-border purposes. This would curb unnecessary dollarisation risks while ensuring that innovation continues on India’s own digital-currency infrastructure.
As stablecoin regulations diverge across jurisdictions, the IMF warns of fragmentation and regulatory arbitrage. How should India calibrate its domestic policy strategy to avoid being either exposed or left behind?
India will need a calibrated, forward-looking strategy to navigate diverging global stablecoin rules without becoming either overexposed or strategically sidelined. The starting point is macro strength. A resilient, fast-growing economy, and a stable and trusted rupee, remain India’s best long-term anchor. If citizens see the INR as reliable in both fiat and digital form, global regulatory fragmentation becomes far less threatening.
But India also needs digital preparedness. To stay competitive, it must have its own “horse in the race”: an INR-backed regulated stablecoin that complements the CBDC and positions the country for a future where public and private digital currencies coexist. This is not only a defensive hedge against the growing reach of USD stablecoins; it is also a tool to expand India’s economic influence in a more fragmented financial internet.
That requires looking outward, not inward. An INR stablecoin placed on a public blockchain, and strategically promoted across South Asia and the broader Global South, could help India build early network effects. The sooner India cultivates a regional market, the greater its ability to shape cross-border digital payments, rather than adapt to standards set elsewhere.
Author:
Views are personal.