For years, the Reserve Bank of India (RBI) has been expressing its discomfort with cryptocurrencies, highlighting concerns around volatility, investor protection, and financial stability. But RBI deputy governor T. Rabi Sankar, speaking at Mint’s Annual BFSI Conclave 2025 on Friday, flagged risks associated particularly with stablecoins, considered as the more sensible, utility-driven corner of the crypto universe.
Mint takes a look at this growing asset class, and what it may mean for India’s financial system.
What are stablecoins?
Stablecoins are a category of cryptocurrencies designed to maintain a stable value, usually by pegging them to relatively secure assets such as fiat currencies, commodities, or other financial assets. First appearing in the mid-2010s, they were created to combine the efficiency of blockchain-based payments with the price stability needed for routine financial use.
The most widely used stablecoins are backed by the US dollar. These fiat-backed stablecoins usually maintain 1:1 peg with the greenback (that is 1 stablecoin issued for every 1 dollar held in reserves). The reserves of cash or cash-equivalent assets are typically managed by independent custodians and/or subject to periodic audits.
The US dollar-denominated stablecoins make up around 99% of the global stablecoin market valued at around $225 billion. This accounts for roughly 7% of the broader $3 trillion crypto ecosystem, according to JP Morgan Global Research, which expects the stablecoin market to reach $500-750 billion in the next couple of years.
Tether (USDT) is the most popular stablecoin and is the third-largest cryptocurrency by market capitalization ($186 billion), as of December 2025. USD Coin, TrueUSD, and PayPal USD are some of the other dollar-backed stablecoins.
Some stablecoins are also backed by commodities, such as gold and oil. There are also algorithmic stablecoins, which rely on automated mechanisms that adjust token supply to maintain price stability.
What are the advantages offered by stablecoins?
Stablecoins were created to address a key limitation of cryptocurrencies like Bitcoin: Extreme price volatility, which makes them impractical for routine payments and financial planning. By aiming to hold a steady value, stablecoins offer a more predictable alternative within the digital asset ecosystem.
This price stability allows users to store value and transact without worrying about sudden price swings. Like other cryptocurrencies, stablecoins are built on programmable blockchains, enabling permissionless, automated payments, smart contracts, and greater control over fund use without the need for intermediaries like banks and brokers. This programmability makes stablecoins a dependable medium of exchange in decentralized applications and digital marketplaces.
In addition, stablecoins function as a digital, on-chain version of traditional money. They are easy to hold directly, settle transactions quickly, and are particularly efficient for cross-border transfers, which can be faster and cheaper than conventional banking channels. These features make stablecoins well-suited to modern financial systems that operate 24X7.
What did the RBI deputy governor say?
At Mint’s Annual BFSI Conclave 2025 in Mumbai, Sankar flagged the key risks and vulnerabilities associated with stablecoins. Firstly, for stablecoins to be considered money, the issuer needs to promise to pay par value to the holder. “It is not clear whether stablecoins are the liability of their issuers,” he pointed out.
Even if such a liability is legally established, it must be remembered that a stablecoin is private money, that is, it is not backed by any sovereign guarantee.
About stablecoins’ oft-cited benefit of making cross-border payments more efficient, Sankar said it is not certain that stablecoin issuers would have the same degree of acceptability as international banks that are closely regulated and backstopped by central banks. Also, the purported efficiency is doubtful when there are a large number of stablecoins in the ecosystem.
In the domestic space, systems such as UPI, RTGS, and NEFT already provide fast, low-cost, and secure payment capabilities to millions of users, and stablecoins hardly offer any additional advantages.
Are there any systemic risks arising from stablecoins?
One major risk is currency substitution. Because stablecoins are designed to function like money, they risk displacing domestic currencies. There are also implications for monetary policy. If households and businesses increasingly transact or save in stablecoins, central banks may find it more challenging to influence economic activity through interest rate adjustments or changes in the money supply.
Prices could become more volatile if official currency and crypto-based instruments coexist in everyday transactions.
Stablecoins can also complicate capital account management. Their cross-border, pseudonymous nature can enable untracked capital flows, weakening the effectiveness of capital controls that many countries rely on for financial stability.
Finally, large-scale adoption could disrupt banking and credit intermediation. If stablecoins replace bank deposits, banks may lose access to low-cost funds, pushing up credit costs or increasing dependence on central bank liquidity.
“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 said.
What are the global rules for this asset class?
Globally, regulators have moved to bring stablecoins within formal financial oversight frameworks as their scale and usage have grown. In 2021, the International Organization of Securities Commissions (IOSCO) and the Bank for International Settlements (BIS) said systemically important stablecoins should be treated on par with critical financial market infrastructure, similar to payment systems and clearing houses. The emphasis was on preventing disruptions to payment and settlement networks.
In Europe, the Markets in Crypto-Assets (MiCA) regulation, implemented in 2023, imposed strict conditions on stablecoin issuers. Algorithmic stablecoins face particularly tight restrictions, while other stablecoins must maintain fully backed, highly liquid reserves at a 1:1 ratio held with independent custodians.
The US has also intensified scrutiny with the Guiding and Establishing National Innovation for U.S. Stablecoins Act (GENIUS Act), passed in July 2025. This legislation mandates clearer disclosures by stablecoin issuers, regular reporting of reserve holdings, and bans misleading claims about government backing or legal tender status.
While the law allows non-banking players, including subsidiaries of insured depository institutions (IDIs) and state-chartered entities to be approved as stablecoin issuers, it is unclear whether they will have access to the Fed’s balance sheet, which can be critical in case of bank run-type situations.
How has India approached this space?
Beginning with its first cautionary statement in 2013, the RBI has repeatedly warned users about the potential financial, operational, legal, customer protection and security-related risks of virtual currencies. However, cryptocurrency as an asset class sits in a regulatory grey area in the country. While they are not explicitly banned, they are not recognized as legal tender either. The Union budget of 22-23 introduced a flat 30% tax, plus applicable surcharge and cess, on transfer of virtual digital assets (VDAs). This effectively recognized cryptocurrencies as taxable assets while denying them the status of legal tender.
Some participants were hopeful that the central bank would take a more lenient view towards stablecoins, but Sankar’s recent remarks have effectively put those expectations to rest. However, as Sankar himself acknowledged, India should not shut itself off from innovative technologies like blockchain and tokenisation.
Towards this, the RBI is keen for the adoption of ‘Digital Rupee’ or e ₹—India’s Central Bank Digital Currency (CBDC).
“CBDCs are digital tokens like stablecoins, yet they are inherently superior since they satisfy all the attributes that money should have—fiat, single, trusted and representing value—and do not pose many of the risks associated with stablecoins. They can perform all the functions stablecoins claim to offer, such as programmability, atomic settlement, and lower cross-border frictions, while being fully anchored within the existing financial system,” the deputy governor said.
The use of CBDC can be encouraged domestically by introducing features such as tiered anonymity, where low-value transactions retain a degree of privacy similar to cash, while higher-value transfers remain subject to appropriate safeguards. Cross-border use can be given a push through interoperable CBDC arrangements among countries.
Such steps can build user confidence, encourage adoption and simultaneously minimize the risk of disrupting the traditional banking system.