What are stablecoins? How are they different from other cryptos such as bitcoins?

Stablecoins are a category of crypto-assets designed to maintain a stable value by being pegged to an underlying reference, typically a fiat currency (issued by or under the authority of the sovereign) such as the US dollar.

Bitcoin has no underlying and its price is driven purely by speculation. In contrast, stablecoins’ value is determined by the reserves backing them. These reserves can include cash, government securities, or other financial assets.

The key distinction lies in the claim to value. Bitcoin and similar cryptocurrencies have no intrinsic value and are not backed by any promise to pay. They have no issuer standing behind them and no underlying cash flows. Their prices, therefore, do not reflect value in the conventional monetary sense but are driven by speculative trading, which are comparable to historical asset manias.

Can stablecoins act as a currency or medium of exchange?

Stablecoins claim to represent value because of the assets held in reserve and their peg to sovereign currencies. This gives them some currency-like features and allows them, in theory, to function as a medium of exchange.

But remember, for an instrument to qualify as “money”, it must involve an unconditional promise to pay at par by the issuer. It remains unclear whether major stablecoins offer such a legally enforceable promise, which weakens their claim to being true money.

Another fundamental difference lies in their status as private money. Modern money is trusted because it is sovereign-backing. All its forms are interchangeable at the same value. Stablecoins are privately issued. Even if they are asset-backed, they do not meet these basic features of modern money.

The first stablecoins, including Tether (USDT) and BitUSD, appeared around 2014, offering crypto convenience with US dollar–backed stability.

What did the RBI deputy Governor, T Rabi Shankar say about stablecoins recently?

Speaking at an industry summit in Mumbai recently, RBI Deputy Governor T Rabi Shankar took a clear and sceptical position on stablecoins, arguing that they do not have a meaningful role in the financial system.

While acknowledging that stablecoins are closer to money than unbacked cryptocurrencies, he emphasised that they still do not meet the core attributes that define modern money.

He argued that modern money is trusted because it is fiat, and because it is “single”, meaning all forms of money are interchangeable at par and settle in central bank money. Stablecoins, being privately issued, violate both principles.

He also questioned the commonly claimed benefits of stablecoins. In domestic payments, he noted, systems like UPI already offer fast, low-cost and reliable transactions, leaving little room for stablecoins to add value.

In cross-border payments, while stablecoins may appear efficient, their effectiveness depends on wide acceptance and trust, which private issuers may not command, especially compared to regulated international banks.

From a policy perspective, he argued that India’s focus should instead be on strengthening central bank digital currencies (CBDCs), interoperable payment systems, and fast payment linkages, which can deliver innovation without compromising financial stability.

What according to him are the risks posed by these assets?

In his speech, T Rabi Shankar outlined a wide range of risks posed by stablecoins, spanning monetary, fiscal, banking, and systemic dimensions.

One of the most serious concerns is currency substitution. Stablecoins, particularly those denominated in foreign currency, could reduce demand for domestic money and accelerate dollarisation, especially in emerging markets.

Stablecoins also threaten the effectiveness of monetary policy. If households and firms increasingly transact or hold value in stablecoins, changes in domestic interest rates or currency in circulation may have limited impact on economic behaviour. This weakens the central bank’s ability to manage inflation and economic cycles by managing system liquidity and rates.

Another major risk lies in capital account management. Stablecoins can enable unmonitored cross-border flows, making it harder for authorities to enforce capital controls. This is a valuable tool for macroeconomic and financial stability in countries like India. The pseudonymous nature of blockchain transactions compounds this challenge.

From a banking perspective, widespread use of stablecoins could disintermediate banks by replacing deposits, raising the cost of credit or forcing banks to rely excessively on central bank liquidity. This would weaken the financial system’s ability to distribute credit efficiently.

The speech also highlighted the loss of seigniorage. Income that rightly accrues to the sovereign from issuing fiat money could be diverted to private stablecoin issuers, often located outside the domestic jurisdiction.

Finally, the combined effect of these factors increases systemic vulnerability, making economies more exposed to external shocks and financial instability.

Is RBI likely to give permission to stablecoins?

Based on this speech and earlier comments from central bankers, there is no indication that the RBI is inclined to permit stablecoins within India’s financial system. In fact, the tone and substance point firmly in the opposite direction.

So far, India’s central bank has framed the issue as a choice between strengthening the existing monetary system or experimenting with instruments that lack the safety features of money.

Taken together, this strongly suggests that regulatory approval for stablecoins is unlikely under the current policy framework.

What has been the Trump administration’s stance on this?

Since returning to the U.S. presidency, Donald Trump’s administration has taken a more accommodative approach toward stablecoins, favouring regulation over prohibition. The policy thrust has been to bring stablecoins within the formal financial system rather than suppress their use.

A key legislative step was the GENIUS Act, signed into law in mid-2025, which establishes a federal framework for the issuance of payment stablecoins, primarily those backed by the U.S. dollar, with requirements on reserve backing, disclosure and regulatory oversight. The move was welcomed by parts of the crypto industry as providing long-sought legal clarity and a pathway for wider adoption.

In addition to legislation, the Trump administration has taken executive and policy steps to reshape the U.S. approach to digital assets. In 2025, an executive order signalled a shift away from earlier CBDC-centric policies and set up a process to develop a comprehensive regulatory framework for digital assets. The emphasis was on clarifying rules for private crypto activity, including stablecoins, and reinforcing U.S. influence in the evolving digital finance landscape.

The Trump administration has also signalled a more permissive regulatory posture toward banks’ involvement with digital assets, including guidance that allows banks to act as intermediaries in certain crypto-related activities. This points to an effort to integrate digital assets with the traditional financial system under regulatory oversight, rather than keep them entirely outside it.

Have any other countries adopted stablecoins?

Yes, several jurisdictions have put in place regulatory frameworks for stablecoins and, in some cases, have permitted their issuance under defined conditions. These frameworks are aimed at bringing stablecoin activity within the formal financial system rather than leaving it unregulated.

Japan has one of the clearest stablecoin regimes, having amended its payment laws to allow issuance of fiat-linked stablecoins by licensed entities. This has enabled yen-pegged stablecoin initiatives under regulatory supervision, making Japan an early mover among major economies.

Other Asian financial centres, including Hong Kong and Singapore, have also introduced stablecoin frameworks or consultation-based regimes that allow fiat-backed stablecoins to be issued under licence, subject to prudential and governance standards.

In the United States and the United Kingdom, stablecoin regulation is still evolving, but both have moved toward formal rulebooks that would permit issuance and use of stablecoins within a regulated environment.

In the UAE, stablecoins fall within broader virtual asset regulatory frameworks, thus allowing their issuance and use subject to approval by designated regulators.

In addition, a few countries and financial institutions have piloted or launched local-currency-linked stablecoin.

Published on December 16, 2025