MC EXCLUSIVE Govt in wait-and-watch mode on stablecoins, FinMin wary of risks: Official

The Deputy Governor of RBI says that a core risk of Stablecoins is "currency substitution".

• India is waiting to see global impact before regulating Stablecoins
• Stablecoins may disrupt capital flows and pose risks to monetary policy
• US GENIUS Act on Stablecoins could affect emerging economies from 2027

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“The central government has not yet put in abeyance the idea of formulating a regulation on stablecoins. It’s only waiting to see what impact it has on global capital flows,” a senior official from the finance ministry told Moneycontrol on January 30.

Stablecoins are a type of cryptocurrency whose value is pegged to another asset, such as a fiat currency (like the US dollar) or a commodity. Their primary purpose is to maintain a stable price, unlike other cryptocurrencies like Bitcoin and Ethereum, which are highly volatile.

Tether (USDT) and USD Coin (USDC) are two examples of stablecoins.

"It’s too early to form a policy on stablecoins or its regulation in India. The Reserve Bank of India (RBI) has been highlighting risks that are attached to this form of cryptocurrency. We first need to wait and watch, and see how it plays out in US," the official quoted above said.

According to officials, stablecoins can "disrupt capital flows" by creating a "digital alternative" to the traditional banking system. Since they exist on blockchains, they operate outside the purview of commercial banks, and the central banks, they say.

What does the Economic Survey say?

The Economic Survey for 2025-26 says that "as a country dependent on global capital flows, India has to plan for liquidity and external capital buffers in the coming year."

"Capital flight, including with the advent of US stablecoins, is another risk to watch out for," it notes.

The US, in July 2025, had introduced the Guiding and Establishing National Innovation for US Stablecoins Act, or the GENIUS Act, to establish a regulatory framework for dollar-backed payment for stablecoin issuers that can help stablecoin payment companies, traditional financial institutions, and consumers to navigate with the transactions with more clarity.

The Act would likely take effect from January 2027, says the Economic Survey. "Regulated private sector institutions can issue US dollar-backed stablecoins. Depending on its success, it carries the potential to disrupt capital flows to emerging and developing economies," the Survey adds.

On January 29, at a press briefing, Chief Economic Adviser V Anantha Nageswaran said that the government’s position is very similar to what is being articulated by RBI’s Deputy Governor T Rabi Shankar.

Also, “the US Act on stablecoins is not operational yet. As and when it happens, we have to observe and see what kind of implications it has on global capital flows,” the CEA said.

RBI views

In an event on December 12, Sankar said that stablecoins lack the basic attributes of money, and their advantages are “neither unique nor unambiguous, even as their risks are all too real”.

He also said that they could lead to price volatility and reduce the capability of the central bank to conduct monetary policy.

"The combination of weakened banks, reduced monetary policy effectiveness, and limited capital account management amplifies systemic vulnerabilities. Large-scale stablecoin adoption could expose domestic economies to external shocks and cross-border volatility, leaving traditional policy instruments less effective in managing financial stress," Sankar had said.

The deputy governor also said that a core risk of stablecoins is "currency substitution".

“Their design as currency-like instruments introduces the potential for currency substitution, particularly in emerging markets, where they could compete with domestic fiat money. Stablecoins, whether denominated in domestic currency or foreign currency, would reduce demand for local currency and raise the risk of dollarisation," he noted.

Experts’ take

Experts say that by enabling rapid and frictionless capital movement, stablecoins can turn a market fluctuation into a capital flight and potentially destabilise economies.  Sudden buying and selling of stablecoins can impact the demand for government securities and thereby the yields and interest rates, they say.

"India’s decision to wait and watch is not a sign of stagnation, but of strategic prudence. We are witnessing the US attempt to formalise the dollar’s digital reach through the GENIUS Act.  However, ramifications of the framework are too early to conclude on," said Rajnish Gupta, Partner, Tax and Economic Policy Group, EY India.

Some experts, however, say that stablecoins have gained significant traction, growing large enough to play an increasingly important role in financial intermediation.

"Their rapidly rising market capitalisation and deeper interconnections with the traditional financial system make a case for considering them as part of the broader financial system," said Vivek Iyer, Partner and Financial Services Risk Leader, Grant Thornton Bharat.

Although it is imperative for regulators to evaluate the possibilities for their integration, with a clear understanding that while any innovative framework carries inherent risks, standards of quality, transparency, and governance must not be compromised, added Iyer.