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 government) such as the US dollar.
Bitcoin has no underlying value and its price is determined purely by speculation. The value of stablecoins, on the other hand, is determined by the reserves they support. These reserves may include cash, government bonds or other financial assets.
The most important distinction lies in the claim to value. Bitcoin and similar cryptocurrencies have no intrinsic value and are not backed by any promise to pay. There is no issuer 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 is similar to historical asset manias.
Can stablecoins function as a means of payment or 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 characteristics and, in theory, allows them to function as a medium of exchange.
But remember that for an instrument to qualify as “money” it must contain an unconditional promise by the issuer to pay at par. It remains unclear whether major stablecoins offer such a legally enforceable promise, which weakens their claim to be real money.
Another fundamental difference lies in their status as private money. Modern money is trusted because it is backed by the state. All its forms are interchangeable at the same value. Stablecoins are privately issued. Even if they are backed by assets, they do not meet these basic characteristics of modern money.
The first stablecoins, including Tether (USDT) and BitUSD, appeared around 2014, offering crypto convenience with US dollar-backed stability.
What did RBI Deputy Governor T. Rabi Shankar recently say about stablecoins?
Speaking at an industry summit in Mumbai recently, RBI Deputy Governor T. Rabi Shankar took a clear and skeptical stance on stablecoins, arguing that they do not play a meaningful role in the financial system.
While he acknowledged that stablecoins are closer to money than unbacked cryptocurrencies, he emphasized that they still fall short of the core characteristics that define modern money.
He argued that modern money is trusted because it is fiat, and because it is ‘single’, meaning that all forms of money are interchangeable at par and settled in central bank money. Stablecoins, which are privately issued, violate both principles.
He also questioned the widely claimed benefits of stablecoins. In domestic payments, he noted, systems like UPI already offer fast, cheap and reliable transactions, leaving little room for stablecoins to add value.
While stablecoins may seem efficient in cross-border payments, their effectiveness depends on broad acceptance and trust, something that private issuers may not have, 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 high-speed payment links, which can deliver innovation without compromising financial stability.
What does he think are the risks of these assets?
In his speech, T Rabi Shankar outlined a wide range of risks of stablecoins, covering monetary, fiscal, banking and systemic dimensions.
One of the most serious concerns is currency substitution. Stablecoins, especially those denominated in foreign currencies, could reduce demand for domestic money and accelerate dollarization, especially in emerging markets.
Stablecoins also threaten the effectiveness of monetary policy. As households and businesses increasingly transact or hold value in stablecoins, changes in domestic interest rates or the currency in circulation may have limited impact on economic behavior. This weakens the central bank’s ability to control inflation and economic cycles by controlling system liquidity and interest rates.
Another major risk lies in capital account management. Stablecoins can enable uncontrolled 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 makes this challenge even greater.
From a banking perspective, the 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 emphasized the loss of seigniorage. Revenues that rightfully accrue to the government from the issuance of fiat money can be diverted to private stablecoin issuers, which are often located outside domestic jurisdiction.
Finally, the combined effect of these factors increases system fragility, making economies more vulnerable to external shocks and financial instability.
Is RBI likely to approve stablecoins?
Based on this speech and previous comments from central bankers, there is no indication that the RBI is inclined to allow stablecoins within the Indian financial system. In fact, the tone and content 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 security features of money.
Taken together, this strongly suggests that regulatory approval for stablecoins is unlikely under the current policy framework.
What is the Trump administration’s position on this?
Since returning as US president, Donald Trump’s administration has taken a more accommodative approach to stablecoins, favoring regulation over prohibition. The policy objective was to bring stablecoins into 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 stablecoins for payments, primarily those backed by the US dollar, with reserve backing, disclosure, and regulatory oversight requirements. The move was welcomed by parts of the crypto industry as it provided long-sought legal clarity and a path to 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 signaled a shift from previous CBDC-focused policies and established a process to develop a comprehensive regulatory framework for digital assets. The focus was on clarifying the rules for private crypto activities, including stablecoins, and strengthening US influence in the evolving digital financial landscape.
The Trump administration has also signaled a more permissive regulatory stance toward banks’ involvement in digital assets, including guidelines allowing banks to act as intermediaries in certain crypto-related activities. This signals an attempt to integrate digital assets into the traditional financial system under regulatory control, rather than keeping them out completely.
Are there any other countries adopting stablecoins?
Yes, several jurisdictions have introduced regulatory frameworks for stablecoins and in some cases allowed their issuance under defined conditions. These frameworks aim to bring stablecoin activity into the formal financial system rather than leaving it unregulated.
Japan has one of the clearest stablecoin regimes and has changed its payment laws to allow the issuance of fiat-pegged stablecoins by licensed entities. This has enabled yen-pegged stablecoin initiatives under regulatory scrutiny, making Japan an early mover among major economies.
Other Asian financial centers, including Hong Kong and Singapore, have also introduced stablecoin frameworks or consultation-based regimes that allow fiat-backed stablecoins to be issued under license, 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 allow the issuance and use of stablecoins within a regulated environment.
In the UAE, stablecoins fall within broader regulatory frameworks for virtual assets, making their issuance and use subject to approval by designated regulators.
In addition, a few countries and financial institutions have tested or launched a local currency-pegged stablecoin.
Published on December 16, 2025
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