India's Chief Economic Adviser, V. Anantha Nageswaran, issued a stark warning on Wednesday during an event in Mumbai, stating that dollar-backed stablecoins are set to emerge as a major issue in the coming year. He emphasized that these digital currencies could create significant difficulties for countries managing their monetary systems, particularly affecting monetary policy transmission and seigniorage benefits—the profits governments earn from currency issuance.
Nageswaran noted that the global market for dollar-backed stablecoins has surpassed $300 billion, driven by supportive regulations in the U.S. and growing worldwide acceptance. However, he pointed out that India faces less pressure to adopt stablecoins due to its robust domestic payment network, the Unified Payments Interface (UPI). Despite this, stablecoins add a layer of direct competition for banks, both in financial intermediation and in attracting customer deposits.
According to an official document reviewed by Reuters, India is determined to avoid enacting specific laws for cryptocurrencies, fearing that regulation would legitimize them and potentially create systemic risks. The Reserve Bank of India (RBI) maintains warnings that have effectively frozen banking system access to these assets, while the government imposes heavy taxes on crypto profits. The document also revealed that Indian residents hold cryptocurrency investments worth $4.5 billion, but current use poses no significant threat to financial stability due to limited regulatory clarity helping control risks.
India's stance has evolved over time, from drafting legislation to ban private cryptocurrencies in 2021 to pushing for global rules during its G20 presidency in 2023. Currently, international crypto trading platforms can operate in India after registering with anti-money laundering authorities, but the country remains cautious, delaying policy discussions to observe U.S. developments.
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