India's Strategic Caution Toward Stablecoins: Implications for Global Crypto Markets and CBDC Adoption

India's approach to stablecoins and Central Bank Digital Currencies (CBDCs) has emerged as a pivotal case study in the global debate over digital finance. As the world's largest recipient of remittances and a leader in digital payments, India's regulatory choices carry outsized influence on emerging markets. The country's cautious stance-prioritizing CBDCs over private stablecoins-reflects a strategic balancing act between fostering innovation and safeguarding macroeconomic stability. This analysis explores the implications of India's policies for global crypto markets, CBDC adoption, and the broader regulatory landscape in emerging economies.

India's Dual Approach: Caution and Innovation

India's regulatory framework for stablecoins remains unformed, but its treatment of them as Virtual Digital Assets (VDAs) under the Prevention of Money Laundering Act (PMLA 2002) and Foreign Exchange Management Act (FEMA) has created a legal gray zone. Stablecoins are not recognized as legal tender, and cross-border transactions remain subject to compliance risks. The Financial Intelligence Unit–India (FIU-IND) has enforced strict anti-money laundering (AML) and Know Your Customer (KYC) requirements, blocking 25 offshore crypto exchanges for non-compliance. This regulatory tightrope reflects the Reserve Bank of India's (RBI) concerns about systemic risks, including the potential erosion of the rupee's dominance and disruption of the UPI-dominated payments ecosystem.

Yet India is not entirely dismissive of stablecoins. The government has explored an INR-backed stablecoin to complement the e-Rupee and streamline remittances. A notable development is the proposed Asset Reserve Certificate (ARC), a rupee-backed stablecoin set to launch in Q1 2026. Fully collateralized by government securities or cash equivalents, the ARC aims to prevent capital outflow into dollar-backed stablecoins while supporting domestic economic infrastructure. This initiative underscores India's ambition to harness stablecoins for cross-border efficiency without ceding monetary sovereignty.

Global Implications: A Model for Emerging Markets?

India's regulatory approach has broader implications for emerging markets, particularly in South Asia. The RBI's emphasis on CBDCs over private stablecoins aligns with a global trend where central banks seek to reclaim control over digital finance. India's e-Rupee pilot, with ₹10.16 billion in circulation by March 2025, has become the second-largest CBDC pilot globally. The RBI's strategy includes offline functionality, programmability, and cross-border interoperability, positioning the e-Rupee as a scalable alternative to unregulated stablecoins.

Emerging markets are taking note. Countries like Nigeria, Brazil, and the Philippines-where remittances and informal cross-border flows are significant-have shown interest in India's CBDC model. For instance, India's e-Rupee pilot demonstrates how a CBDC can reduce settlement risks and enhance financial inclusion while maintaining central bank oversight. This approach contrasts with the U.S. GENIUS Act, which formalizes stablecoin regulations to encourage institutional adoption. India's path highlights a divergent but influential strategy: prioritizing state-controlled digital currencies to counter dollarisation risks and preserve monetary policy autonomy.

Macroeconomic Risks and the Stablecoin Dilemma

Despite India's cautious optimism, stablecoins remain a double-edged sword. The RBI has warned that stablecoins offer no unique utility over fiat and could undermine trust in the financial system. This caution is warranted given the risks of currency substitution. For example, 3–4% of India's $135 billion remittance flows now bypass traditional banking channels via USD stablecoins, creating arbitrage opportunities and regulatory arbitrage. The Finance Minister's acknowledgment that digital currency transformation is "inevitable" signals a shift toward structured regulation rather than outright resistance.

However, India's regulatory vacuum has allowed unregulated stablecoins to proliferate. With 314 million stablecoin holders, more than any other country, India faces risks such as value loss due to issuer failure, as seen in the TerraUSD collapse. The RBI's push for reserve standards and independent audits aims to mitigate these risks while fostering innovation. This balancing act mirrors challenges in other emerging markets, where stablecoins are often used for wealth preservation and cross-border trade but lack consumer protections.

CBDCs as a Counterweight to Dollar-Backed Stablecoins

India's CBDC strategy is explicitly designed to counter the dominance of dollar-backed stablecoins. The e-Rupee's integration with UPI and its focus on offline functionality aim to replicate the efficiency of stablecoins while maintaining central bank control. This approach aligns with broader efforts to internationalize the rupee, particularly in cross-border trade with neighboring countries. By promoting an INR-backed stablecoin, India seeks to reduce reliance on external financial systems and assert monetary sovereignty.

Globally, this strategy resonates with emerging markets seeking to reduce dollar dependency. For example, countries in Southeast Asia and Africa are exploring CBDCs to enhance financial inclusion and reduce transaction costs. India's experience with the e-Rupee provides a blueprint for how CBDCs can coexist with private digital assets while reinforcing central bank authority.

Conclusion: A Blueprint for Pragmatic Regulation

India's strategic caution toward stablecoins and its aggressive CBDC development offer a compelling model for emerging markets. By prioritizing monetary sovereignty and financial stability, India has navigated the tension between innovation and regulation with a pragmatic, phased approach. The proposed ARC and e-Rupee pilot demonstrate how a country can harness digital finance without ceding control to private actors or foreign currencies.

For global investors, India's trajectory underscores the importance of regulatory alignment in the crypto-CBDC landscape. While stablecoins remain a disruptive force, their long-term viability in emerging markets may depend on integration with state-backed digital currencies. As India's policies evolve, they will likely shape the regulatory frameworks of other emerging economies, offering a template for balancing innovation with macroeconomic resilience.