Introduction
The global fintech landscape is witnessing a defining contest between privately issued stablecoins and government-backed digital currencies. Rather than following international trends, India has adopted a cautious regulatory approach centred on the Digital Rupee and long-term financial stability.
The largest policy challenge of the moment is to decide on whether there should be privately issued stablecoins or government-backed Central Bank Digital Currencies (CBDCs). The U.S. has adopted law and regulation that is seminal and foundational, while it’s clear India is taking a decidedly different route- one that is deliberate, sovereign and based on macroeconomic prudence.
The position has brought India into conflict with some big economies and led to a debate across the globe regarding the future of digital payments: whether they should be based on tokens issued by private entities backed by the fiat currency or on official digital currencies issued and regulated by the central bank. The result of this will shape the regulations of the payments, remittance, cross-border, and financial inclusion sectors for the fintech sector in India and beyond for decades to come.
Brief Overview
Stablecoins are a type of cryptocurrency that is pegged to a reference currency, typically the US dollar. Unlike the other cryptocurrencies like Bitcoin or Ethereum, stablecoins provide you with a digital payment experience without the volatility. Some of the most popular examples are globally are Tether (USDT) and USD Coin (USDC).
The latter are digital sovereign money issued by the central bank of a country (CBDCs). They are backed by the full power of the law and function in the current system of regulation, which is the same as for physical currency. Nigeria, the Bahamas, and Jamaica have already rolled out CBDCs successfully, and dozens of other nations are testing or conducting research on the development of CBDCs.
Starting from November 2022, the Government of India’s Digital Rupee or e-Rupee has been introduced in wholesale and retail mode. The retail pilot provides for the transactions of users and vendors and the wholesale pilot provides for interbank settlement. Since then the e-Rupee has had more than one hundred and twenty million retail transactions processed, making it one of the most active retail CBDC pilots in the world. Even with this positive push, the RBI has been very vocal about its stance against privately issued stablecoins.
The RBI's Policy Concerns Surrounding Stablecoins
The RBI’s stance against stablecoins is well-founded, multifaceted, and aligned with India’s economic landscape. Deputy Governor T. Rabi Sankar has said that stablecoins have not met the essential requirements of money. Moreover, the apparent benefits of stablecoins are yet to be established and are mostly speculations.
Concerning monetary policy, the RBI’s worry is the adoption of stablecoins may have an adverse impact on the monetary transmission mechanism in India. As a large proportion of deposits moves into what would be more of a stablecoin space – especially the foreign currency pegged ones – it will reduce the liquidity, credit and inflation management capacity of the RBI and make banks more reliant on central bank liquidity.
The RBI is clear on one thing about financial inclusion- smartphones, internet, and digital wallets are prerequisites for stablecoins. Such pre-conditions do not address the financial inclusion deficits that already exist in India, caused by infrastructure shortfalls, lack of digital literacy and geographic isolation.India already has a home-grown, interoperable and accessible payment system called UPI that has been reaching hundreds of millions of users without the risks of stablecoins.Stablecoins would have little upside as compared to what UPI is already able to achieve at scale.
As for financial stability, the RBI refers to “real-world de-pegging incidents” that have affected markets around the world. These incidents are not theoretical; they have had tangible financial impact on users and taken away trust in the digital asset community. For the RBI, India cannot afford to be vulnerable to such systemic risks in its financial system.
Global Momentum And India’s Divergence
India’s role is unique among economies of the world. Stablecoins are included in the EU’s Markets in Crypto-Assets (MiCA) regulation and are officially recognised, with a well-defined framework for issuing and regulating stablecoins. Japan has gone in a general similar trend. The US has passed a stablecoin law, and North American, European and Asian financial institutions are incorporating stablecoins into cross-border payment systems.
India has explicitly chosen not to follow this path, arguing that financial systemic risk concerns unique to its financial system, such as scale, integration and sensitivity to capital flows from foreign denominated digital instruments, are unique to it. However, there is considerable internal conflict in India’s policy framework.
The contradiction in the policy is a representation of the dilemma existing in the world today, where the world’s two largest economies, the US and China, operate as two sides that are almost rivals. The US allows the use of stablecoins in terms of dollars, which have led to the prevalence of the dollar currency in digital money exchanges. China rolled out its CBDC, known as digital yuan. India’s policy position can be said to be aligned with China’s but independent strategically.
The Rise Of Digital Rupee And Cross-Border Fintech
However, India’s response is the e-Rupee, its sovereign CBDC. As a result of RBI’s multiple phase implementation process, the e-Rupee becomes one of the CBDC pilots with the highest operational impact worldwide. The retail pilot involving daily consumer and business operations now has more than 8 million users, whereas the wholesale pilot facilitates interbank settlement processes. The next phase will feature programmability capabilities as well as integration of government payments and CBDCs across borders.
International cross-border payment transfers are a key fintech area where the advocates of stablecoins make the best case possible. Being the largest country by remittance flows ($120 billion annually), India has an immediate interest in making international money transfers cheaper and faster. In response to stablecoins, RBI aims to establish payment corridors for CBDCs across different countries. The strategy follows the same approach that RBI utilized in its UPI linkages, such as those in Singapore, UAE, France, Bhutan, Nepal, and the latest in Cambodia.
The Reserve Bank of India has further advocated that the agenda of CBDC linkage be taken up at the BRICS summit slated to take place in 2026 in India. The deputy governor Sankar has stated that CBDCs do not carry any risk of affecting monetary stability like the risks faced by stablecoins.
Challenges And Regulatory Implications
Despite its advancements, the e-Rupee has certain limitations as well. For example, according to the RBI, the privacy concerns of CBDCs must be taken into consideration because, unlike cash, the transactions on the distributed ledger maintained by the central bank are trackable. Deputy Governor Sankar believes that it is a risk that is manageable, as opposed to privately issued stablecoins which pose no threat due to their sovereign nature.
The DPDP, 2023 considers financial data to be sensitive personal data and any regulation on stablecoins is expected to create many grey zones with regard to KYC, AML, and data localization requirements. As opposed to the latter, the e-Rupee can operate smoothly under India’s legal system since it is a sovereign currency.
Last but not least, the enforcement capability needs to be considered. India has already imposed a 30% flat rate of tax on crypto gains along with 1% TDS on crypto transactions. Such measures led to a significant decline in retail crypto transactions. Moreover, the Economic Survey 2025-2026 failed to address some fundamental questions about the taxation, regulation, and auditing of stablecoins.
AMLEGALS Remarks
The approach of India towards stable coins is neither a rejection of fintech nor the result of any apprehensions about the same, but rather an outcome of historical lessons on money and reality concerning its development as a country having many people who remain outside the fold of banking systems and face various macroeconomic risks. RBI’s official stand is quite clear that the first thing for nations to do is focus on CBDCs because otherwise, their currencies will lose credibility and lead to financial instability.
As the RBI prepares its cross-border CBDC roadmap and the Government of India is setting its stance on stablecoins with the help of the Economic Survey 2025-2026 and the upcoming BRICS summit in 2026, the fintech community should collaborate with policy makers instead of opposing them. The Digital Rupee built on top of the powerful Indian UPI infrastructure and increasing international payment connections is the future currency that India has chosen to go for.
For any queries or feedback, feel free to connect with Hiteashi.desai@amlegals.com or Khilansha.mukhija@amlegals.com