By Srinath Sridharan
In recent years, stablecoins have garnered acclaim as a technological bridge between the volatile world of cryptocurrencies and the ostensibly dependable realm of fiat currency. Promoted as digital instruments that combine the efficiency of blockchain with the reliability of state-backed money, these tokens have become darlings of the decentralised finance movement and global payments innovation.
Yet, their moniker — stable — is as aspirational as it is misleading. Beneath the sheen of programmability lies a fragile architecture that is unregulated, opaque, and structurally misaligned with the monetary frameworks of sovereign states. Nowhere is this tension more consequential than in India, where the confluence of public digital infrastructure, capital controls, and central banking autonomy renders stablecoins both redundant and potentially perilous.
At their core, stablecoins claim legitimacy through their peg to fiat currencies — most commonly the US dollar. But this link is not upheld by the institutional guarantees or fiscal instruments that make sovereign money truly stable. Instead, it is sustained by the credibility of private issuers, some of whom operate in regulatory grey zones, offer limited transparency on reserves, and lack enforceable redemption obligations. When confidence wanes, as shown by the implosion of TerraUSD in 2022, these coins can unravel swiftly and catastrophically, triggering digital bank runs without a central bank backstop.
Even where reserve-backed stablecoins function as designed, they present an insidious risk: the gradual erosion of monetary sovereignty. In emerging economies, especially those with open digital markets and rising fintech adoption, stablecoins can act as de facto foreign currencies. Their proliferation invites a form of algorithmic dollarisation — where local users shift to dollar-denominated digital instruments not out of choice, but for ease, familiarity, or perceived safety. In doing so, they bypass the domestic currency and the policy tools of the central bank. For a country like India, which maintains a calibrated capital account and exercises active monetary stewardship through the Reserve Bank of India, such leakage could severely constrain macroeconomic policy.
Proponents of stablecoins often tout their utility: faster cross-border remittances, programmable financial instruments, frictionless e-commerce, and a bridge to decentralised finance. These are not unfounded claims. But they represent a solution looking for a problem in India’s context. It has created a world-class public digital payments ecosystem through the Unified Payments Interface (UPI), which facilitates real-time, low-cost, and interoperable transactions at scale. Moreover, India is actively piloting its own central bank digital currency (CBDC), rendering the introduction of unregulated stablecoins not only unnecessary, but strategically incoherent.
The foundational use case of stablecoins — as a shelter from the extreme volatility of cryptocurrencies — emerges from markets where fiat on-ramps are slow, inaccessible, or fragmented. In India, the ecosystem is not only digitally mature but financially deep, with real-time settlements, frictionless mobile banking, and retail investment platforms already integrated into daily life.
Stablecoins also gained traction by lubricating crypto trading, offering traders a stable medium of exchange without frequent conversions to fiat. But in India, where crypto assets remain outside the formal regulatory perimeter and are subject to tax and compliance obligations, legitimising stablecoins would inadvertently enable high-frequency, offshore-facing capital mobility — circumventing capital controls and tax mechanisms. At a policy level, this would amount to ceding supervisory control over capital flows to privately issued digital instruments.
The third pillar — programmable finance and decentralised lending — presumes a user base transacting outside formal financial infrastructure, relying on decentralised smart contracts to access financial services. India, by contrast, is a case study in how public infrastructure like UPI, Aadhaar, and account aggregators can deliver inclusive, programmable finance within a regulated framework. The notion that stablecoins are a necessary innovation for programmable money is redundant in a country that is building digital public infrastructure at scale.
As for cross-border payments, the claim that stablecoins reduce friction holds true in jurisdictions with weak banking rails and regulatory gaps. But India has consistently ranked among the highest in global remittance receipts, with the cost of remittances steadily falling due to competition, digitisation, and bilateral partnerships. Rather than introduce regulatory opacity through stablecoins, India is actively pursuing a structured expansion of UPI linkages with countries such as Singapore and the United Arab Emirates, and experimenting with CBDC-based cross-border settlements that are auditable and sovereign in design.
Lastly, the proposition that stablecoins can herald a new financial order is not aligned with our economic philosophy. India is not a country that seeks to weaken the state’s role in money. To surrender monetary policy tools to a decentralised consortium or permit a foreign-denominated digital currency to function as informal tender is not innovation — it is abdication.
There are additional structural mismatches. Most stablecoins are issued offshore, governed by opaque legal structures, and fall outside the supervisory reach of Indian authorities. Furthermore, they could undermine the effectiveness of existing frameworks for anti-money laundering, taxation, and cross-border financial flows — areas where India exercises deliberate and necessary vigilance.
The larger issue at stake is the fragmentation of financial authority. Stablecoins do not simply digitise value — they reassign control, shifting power from central banks to private issuers, from domestic institutions to global protocols. In a country with a fast-growing digital economy, a large unbanked population, and high sensitivity to global capital movements, this redistribution of control is not benign. It could lead to the emergence of parallel financial ecosystems that are unaccountable and under-regulated.
To endorse stablecoins in India without a tightly scoped, sovereign-led framework would introduce systemic vulnerability under the guise of innovation. The illusion of stability can’t become a substitute for the hard-earned, legally-anchored stability of sovereign monetary systems.
India’s financial architecture is evolving rapidly, confidently, and on its own terms. The promise of stablecoins must be viewed through a lens of strategic caution, not speculative enthusiasm. In matters of money, trust is not algorithmic — it is institutional.
The writer is corporate advisor & independent director on corporate boards.
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