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Introduction

A rupee-backed stablecoin is a digital token pegged 1:1 with the Indian rupee, backed by cash reserves or government securities. It combines blockchain transparency with fiat stability, offering potential to enhance digital payments, remittances, and cross-border trade, while aligning with India’s growing fintech ecosystem and RBI’s e-rupee pilots.

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Potential Benefits of a Rupee-Backed Stablecoin in India

• Boosts financial inclusion: A rupee-backed stablecoin can extend digital finance access to underserved populations, especially rural India.
  Eg: Aadhaar-enabled eKYC and offline e-rupee trials show potential to expand secure digital finance to rural households.
• Cuts remittance costs: Stablecoins can enable faster and cheaper cross-border transactions, benefitting migrant workers and families.
  Eg: India received $125 bn remittances , where stablecoins could reduce transaction fees by up to 90%.
• Soft Power & Global Reach: Stablecoins pegged to INR can promote the rupee in international trade, reducing reliance on the USD.
  Eg: Recent India–Russia oil trade settled in INR demonstrates the scope for an INR-backed stablecoin.
• Improves trade efficiency: By tokenising export contracts, stablecoins can streamline SME settlements, enhancing ease of doing business.
• Lower Borrowing Costs: Issuers raise funds at low rates, benefiting banks/GOI through cheaper credit access and economic growth.

While the benefits are significant, introducing a rupee-backed stablecoin also brings serious challenges that India must address.

Potential Challenges of a Rupee-Backed Stablecoin in India

• Regulatory Uncertainty and Overlap: Coordination between RBI, SEBI, and the Ministry of Finance will be complex. Clear jurisdictional boundaries are needed to avoid regulatory arbitrage and ensure stable oversight.
• Risks to Monetary Policy and Financial Stability: Large-scale adoption could weaken the RBI’s control over money supply and credit, raising concerns of monetary sovereignty and financial instability.
• AML/KYC & misuse concerns: Despite regulatory safeguards, stablecoins can be misused for money laundering, terror financing, and tax evasion, making strict compliance frameworks essential.
  Eg: The Enforcement Directorate  froze ₹91.6 cr in the HPZ token crypto laundering case.
• Technology & cyber vulnerabilities: Hacks or coding flaws in smart contracts may destabilise the system.
  Eg: The Poly Network hack (2021) resulted in a $600 mn theft, exposing high-tech risk. 
• Operational Challenges in Inclusion: Ensuring offline functionality for rural and semi-urban populations with limited internet access is difficult, and adoption may be uneven across regions.

Roadmap for Regulation and Adoption

A. Regulation 

• Define stablecoin framework: India must classify rupee-backed stablecoins as regulated instruments distinct from volatile crypto-assets.
  Eg: The US GENIUS Act (2024) recognised fully backed stablecoins as legal digital tokens.
• Mandate reserves & audits: Stablecoins must hold 100% reserves in cash or government securities, with independent audits.
  Eg: USDC in the US undergoes monthly third-party audits, ensuring credibility and user trust.
• Ensure regulatory coordination: RBI, SEBI, and MoF should collaborate to design taxation, issuance, and compliance rules.

B. Adoption 

• Pilot under RBI sandbox: Controlled pilots should test stablecoins before national rollout.
  Eg: The RBI’s e-rupee pilot (2022) engaged fintech firms under supervision to assess risks.
• Integrate with UPI & Aadhaar stack: Stablecoins should connect with UPI for payments and Aadhaar for compliance.
  Eg: UPI Lite already supports offline transactions, helping semi-urban and rural adoption.
• Phased expansion strategy: Rollout should begin with remittances, followed by SME trade, and later cross-border use.
  Eg: Singapore’s Project Ubin phased CBDC pilots offer a tested adoption roadmap.
  

Conclusion

A rupee-backed stablecoin could enhance financial inclusion, global trade, and remittances, while strengthening the rupee’s international role. However, risks of financial instability, AML misuse, and sovereignty erosion demand robust regulation. A phased, audited, and innovation-friendly framework can establish India as a global leader in stablecoin adoption.

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