<p>Cryptocurrencies have been in the news for close to two decades, with Bitcoin the most prominent. Questions about whether they can function as money – as a medium of exchange – and whether they should be regulated are routinely debated by academicians and policymakers. For any instrument to serve as money, it must command trust in economic transactions and carry the backing of a central bank — in other words, be legal tender. Cryptocurrencies meet neither condition. They lack the trust of the users and central bank backing. At best, they are traded like speculative assets, their prices swinging wildly. Even calling them assets is contentious, as they lack intrinsic value like gold or the valuation framework of stocks. The search for a stable, non-volatile digital currency pegged to reserves or backed by a central bank has therefore persisted.</p>.<p>The global financial landscape shifted with the passage of the GENIUS Act (Guiding and Establishing National Innovation for US Stablecoins) in the United States in July 2025—the first comprehensive federal framework for stablecoins. The Act, which aims to position the US as a crypto capital of the world, mandates that every stablecoin be backed by an equivalent amount of high-quality liquid assets such as US dollars, Treasury bills, or central bank reserves. Algorithmic stablecoins that rely on code rather than cash are barred from being labelled “payment stablecoins”. Only banks and approved non-bank financial institutions—called 'Permitted Payment Stablecoin Issuers'—can issue them. Issuers must publish monthly, third-party verified audited reports of their reserves, eliminating mere “trust us, we have the money” assurances. Compliance with the Bank Secrecy Act is mandatory, including safeguards against money laundering and terror financing. Among popular US stablecoins are USDC (USD Coin) and USDT (USD Tether), with USDC generally viewed as more transparent due to regular audits. Both combine blockchain speed with the price stability of fiat currency.</p>.<p>In Europe, the Markets in Crypto-Assets (MICA) regulation, passed in 2024, provides a framework for e-money tokens (EMTs) and asset-referenced tokens (ARTs). An issuer authorised in one EU country can operate across all 27 member states, offering significant advantages for scaling businesses. Crypto companies must publish a white paper outlining risks, technology, and rights of the holder. In Asia, Hong Kong passed the Stablecoin Ordinance in May 2025. In China, the State media has called for yuan-backed digital currencies to be pursued “sooner rather than later”. There are concerns that the dollar-backed stablecoins could lead to further weaponisation of the dollar. </p>.<p>How do these developments worldwide impact India? For India—a global leader in digital payments and remittances—stablecoins present a complex paradox: a massive opportunity for economic efficiency balanced against a potential threat to monetary sovereignty. For Indians remitting money into the country, it could mean a significant cost reduction from the existing 5 to 6% owing to high mark-up fees and transaction fees to around 1%. The other advantage is the speed with which funds can be transferred. While the settlement of funds through traditional banking through SWIFT takes a few business days, transferring funds through stablecoins through Blockchain takes just a few minutes. The transfers can also be done 24/7 in contrast to banking channels, which operate only during banking hours. For exporters, especially MSMEs, lower wire transfer costs and real-time settlement could ease cash flow pressures.</p>.<p>India has introduced a Central Bank Digital Currency (CBDC) in response to stablecoins. CBDC can be used in interbank settlements and G-secs and person-to-merchant payments. However, the RBI's <em>Financial Stability Report</em> (December 2025) cautions that embracing stablecoins may weaken the rupee’s role and undermine the RBI’s ability to control inflation and manage monetary policy. Stablecoins provide an easy, often unregulated, exit route for capital, making it harder for India to manage its foreign exchange reserves.</p>.<p>The future of India's economy depends on how it embraces the stablecoins without compromising on monetary sovereignty and financial stability and on whether it can harness the efficiency of these digital rails without losing the “anchor” of the rupee.</p>.<p><em>(The writer is a CFA and a former banker. He currently trains young bankers at Manipal Academy of Higher Education, Bengaluru)</em></p>
<p>Cryptocurrencies have been in the news for close to two decades, with Bitcoin the most prominent. Questions about whether they can function as money – as a medium of exchange – and whether they should be regulated are routinely debated by academicians and policymakers. For any instrument to serve as money, it must command trust in economic transactions and carry the backing of a central bank — in other words, be legal tender. Cryptocurrencies meet neither condition. They lack the trust of the users and central bank backing. At best, they are traded like speculative assets, their prices swinging wildly. Even calling them assets is contentious, as they lack intrinsic value like gold or the valuation framework of stocks. The search for a stable, non-volatile digital currency pegged to reserves or backed by a central bank has therefore persisted.</p>.<p>The global financial landscape shifted with the passage of the GENIUS Act (Guiding and Establishing National Innovation for US Stablecoins) in the United States in July 2025—the first comprehensive federal framework for stablecoins. The Act, which aims to position the US as a crypto capital of the world, mandates that every stablecoin be backed by an equivalent amount of high-quality liquid assets such as US dollars, Treasury bills, or central bank reserves. Algorithmic stablecoins that rely on code rather than cash are barred from being labelled “payment stablecoins”. Only banks and approved non-bank financial institutions—called 'Permitted Payment Stablecoin Issuers'—can issue them. Issuers must publish monthly, third-party verified audited reports of their reserves, eliminating mere “trust us, we have the money” assurances. Compliance with the Bank Secrecy Act is mandatory, including safeguards against money laundering and terror financing. Among popular US stablecoins are USDC (USD Coin) and USDT (USD Tether), with USDC generally viewed as more transparent due to regular audits. Both combine blockchain speed with the price stability of fiat currency.</p>.<p>In Europe, the Markets in Crypto-Assets (MICA) regulation, passed in 2024, provides a framework for e-money tokens (EMTs) and asset-referenced tokens (ARTs). An issuer authorised in one EU country can operate across all 27 member states, offering significant advantages for scaling businesses. Crypto companies must publish a white paper outlining risks, technology, and rights of the holder. In Asia, Hong Kong passed the Stablecoin Ordinance in May 2025. In China, the State media has called for yuan-backed digital currencies to be pursued “sooner rather than later”. There are concerns that the dollar-backed stablecoins could lead to further weaponisation of the dollar. </p>.<p>How do these developments worldwide impact India? For India—a global leader in digital payments and remittances—stablecoins present a complex paradox: a massive opportunity for economic efficiency balanced against a potential threat to monetary sovereignty. For Indians remitting money into the country, it could mean a significant cost reduction from the existing 5 to 6% owing to high mark-up fees and transaction fees to around 1%. The other advantage is the speed with which funds can be transferred. While the settlement of funds through traditional banking through SWIFT takes a few business days, transferring funds through stablecoins through Blockchain takes just a few minutes. The transfers can also be done 24/7 in contrast to banking channels, which operate only during banking hours. For exporters, especially MSMEs, lower wire transfer costs and real-time settlement could ease cash flow pressures.</p>.<p>India has introduced a Central Bank Digital Currency (CBDC) in response to stablecoins. CBDC can be used in interbank settlements and G-secs and person-to-merchant payments. However, the RBI's <em>Financial Stability Report</em> (December 2025) cautions that embracing stablecoins may weaken the rupee’s role and undermine the RBI’s ability to control inflation and manage monetary policy. Stablecoins provide an easy, often unregulated, exit route for capital, making it harder for India to manage its foreign exchange reserves.</p>.<p>The future of India's economy depends on how it embraces the stablecoins without compromising on monetary sovereignty and financial stability and on whether it can harness the efficiency of these digital rails without losing the “anchor” of the rupee.</p>.<p><em>(The writer is a CFA and a former banker. He currently trains young bankers at Manipal Academy of Higher Education, Bengaluru)</em></p>
