Guarding India’s monetary borders
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Guarding India’s monetary borders

November 4, 2025, 1:44 PM IST
CS Aditi Maheshwari
in Adi-bytes, Business, Economy, India, TOI

Stablecoins have quietly grown into systemically relevant money-like instruments. By October 2025, their total supply surpassed $300 billion, led by USDT and USDC — a scale rivalling major money-market funds: 24/7, API-enabled, and dollar-denominated.

India, meanwhile, runs one of the world’s most ambitious retail CBDC pilots — the e₹, alongside deepening real-time cross-border links like UPI–PayNow. The pilot touched ~1 million daily transactions at its 2023–24 peak (aided by incentives) before stabilising at lower organic levels. With programmability and offline functionality now added, about 7 million users are onboard.

Overlay this with India’s status as the largest global remittance recipient — $135.5 billion in FY25 — and the stakes are clear: whoever intermediates these flows gains pricing power, data visibility, and influence over India’s monetary space.

The Fault Lines

Unit of Account vs Means of Payment
Stablecoins import the US dollar unit of account into Indian commerce with frictionless cross-border accessibility. If they evolve into “transactional dollars” atop domestic rails, India risks soft dollarisation. The e₹, by contrast, anchors the rupee as a sovereign, programmable liability, resilient even in low-connectivity regions.
Balance-Sheet Control
Stablecoin reserves—invested in U.S. T-bills and bank deposits—export yield offshore while importing dollar liquidity, distorting capital-flow metrics. The e₹ remains on RBI’s balance sheet, preserving transparency and control.
Regulatory Perimeter
India’s inclusion of VDA service providers under PMLA (2023) and enforcement against non-compliant offshore exchanges (e.g., Binance, 2024) marked crucial jurisdictional boundary-setting.

Remittances and Risks

With average global remittance costs at ~6.5% and South Asia’s at ~4.8%, UPI–PayNow aims to compress costs via instant bank-to-bank rails. Yet stablecoins compete directly on price, speed, and 24/7 access — appealing when banks over-comply or delay.

If stablecoins dominate remittances, India risks:
(a) data visibility loss to offshore issuers,
(b) USD becoming the de facto remittance unit, and
(c) working capital migrating to tokenised dollar markets — even if last-mile conversion stays rupee.

Scenario Analysis

A) Contained Adoption (Base Case)
Use stays niche — crypto trading, B2B, tech freelancers. UPI captures mainstream flows.
Macro risk: Rupee dominance intact.
Triggers: FIU enforcement, UPI cross-border expansion, e₹–UPI interoperability.
B) Shadow Capital Channel (Moderate Risk)
SMEs and affluent users accumulate offshore stablecoins under LRS or trade credit.
Macro risk: Higher FX pass-through, stealth BoP pressure.
Levers: Tighten LRS reporting, enforce proof-of-reserves, prohibit stablecoin-only domestic pricing.
C) Threshold Substitution (Tail Risk)
During rupee stress, households store savings in on-chain dollars; merchants price in USD.
Macro risk: Rupee’s store-of-value erodes; monetary transmission weakens.
Response: Temporary on-ramp throttles, enhanced CDD, macro-prudential surcharges, and accelerated offline e₹ rollout.

Legal and Regulatory Levers

Supervised Plumbing: Mandate FIU registration, travel-rule compliance, segregated custody, and monthly attestations for all INR-touching activity.
Recognised Stablecoin Regime: Permit only 1:1 fiat-backed, bankruptcy-remote SPVs with daily RBI data feeds. Treat as payment instruments under prudential norms.
CBDC as Public Option: Embed e₹–UPI interoperability; prioritise offline, programmable G2P and PDS transactions; authorise non-bank PSPs under RBI licence.
Cross-Border Sovereignty: Scale UPI–PayNow-type links with FX pre-validation and transparent source-of-funds checks.
BoP-Aware Surveillance: Include on-chain USD liquidity indicators in macro-prudential dashboards.
Tax & Audit Clarity: Align VDA TDS/TCS with FEMA/LRS for consistent audit trails.

Where the e₹ Stands

Adoption spikes via incentives but sustains only through practical use cases — micro-merchant payments, G2P, and offline settlements. Reports suggest ~100k daily transactions, with focus shifting to functionality over vanity metrics.

Offline capability, programmability, and non-bank PSP distribution remain vital. A tokenised wholesale CBDC could further anchor institutional liquidity and curb unregulated stablecoin exposure.

A Pragmatic Policy Stack (2025–2028)

Supervised Plumbing: Mandate FIU registration, travel-rule compliance, segregated custody, and monthly attestations for all INR-touching activity.
Recognised Stablecoin Regime: Permit only 1:1 fiat-backed, bankruptcy-remote SPVs with daily RBI data feeds. Treat as payment instruments under prudential norms.
CBDC as Public Option: Embed e₹–UPI interoperability; prioritise offline, programmable G2P and PDS transactions; authorise non-bank PSPs under RBI licence.
Cross-Border Sovereignty: Scale UPI–PayNow-type links with FX pre-validation and transparent source-of-funds checks.
BoP-Aware Surveillance: Include on-chain USD liquidity indicators in macro-prudential dashboards.
Tax & Audit Clarity: Align VDA TDS/TCS with FEMA/LRS for consistent audit trails.

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