Stablecoins Revolutionising Digital Payments

Stablecoins are at the forefront of a significant transformation in digital payments, challenging established players like Visa and Mastercard. These new financial instruments are making transactions faster, cheaper, and borderless.

What Exactly Are Stablecoins?

Stablecoins are digital assets tethered to traditional currencies such as the US dollar (USD), euro (EUR), or Indian rupee (INR). Unlike cryptocurrencies that can fluctuate wildly, their value is stabilised through various methods, like holding fiat reserves or using crypto-collateralised mechanisms.

Some prominent examples include:

• USDT (Tether) and USDC (Circle) – both pegged to the US dollar.
• DAI – backed by various cryptocurrencies.
• PYUSD – a recent stablecoin introduced by PayPal.

These instruments effectively merge the stability of traditional currency with the efficiency of digital systems.

Why Stablecoins Are Driving Competition in Global Payments

1. The Clash of Big Tech and Traditional Finance

Major tech and ecommerce platforms, including PayPal, Shopify, Telegram, and Amazon, are adopting stablecoins to eliminate intermediaries and reclaim transaction fees usually charged by banks, Visa, and Mastercard. For example:

• Shopify merchants can now use USDC through Coinbase’s Base blockchain for quicker payments and reduced costs.
• PayPal’s PYUSD, operating on Ethereum, could seamlessly be integrated into a wide array of merchant platforms.

This shift is directly impacting the revenue streams of traditional card networks. As a response, Visa and Mastercard are looking to support select stablecoins and blockchains such as Solana and Ethereum to maintain their relevance.

2. Legitimation of Crypto Firms—With India Observing Closely

In the United States, leading stablecoin issuers are striving to secure official banking licenses to connect with regulated financial frameworks.

• Circle (USDC) has submitted an application for a national trust bank charter, enabling it to hold reserves directly at the Federal Reserve.
• Ripple (RLUSD) is pursuing a similar charter to connect with the Federal Reserve, aligning with new legislation like the GENIUS Act and STABLE Act aimed at regulating the stablecoin sector.

India is carefully following these developments, especially since it sees over $129 billion in annual remittance inflows, with individuals paying hefty fees ranging between 3% to 7%, according to Artemis data.

Despite regulatory uncertainties, Indians are informally using stablecoins for international payments, often through platforms in ambiguous regulatory spaces.

The Finance Ministry is working on a crypto discussion paper focused on stablecoins, acknowledging their potential for improving cross-border payments and financial inclusion.

SEBI has suggested a multi-regulatory structure where the RBI oversees stablecoins while other agencies monitor broader crypto assets.

While India has not authorised any private entity to issue a local stablecoin or hold reserves, officials are closely examining the US framework, and industry advocates are pushing for similar clarity. If USDC or RLUSD secures full federal support and India develops a compliant structure, it could lead to direct USD-to-INR stablecoin transfers, completely bypassing conventional banking delays.

This scenario might also create opportunities for interoperability between India’s CBDC (e₹) and foreign stablecoins, establishing a hybrid approach to regulated digital finance.

3. The US Focus on Stablecoins Sparks Global Resistance

While the US aims to leverage stablecoins to bolster the dollar’s influence in digital finance, not everyone shares this enthusiasm. The EU’s Markets in Crypto-Assets Regulation (MiCA) curtails the use of non-euro stablecoins in Europe to safeguard monetary autonomy.

Moreover, the Bank for International Settlements (BIS) and various central banks in Asia have voiced concerns that stablecoins could pose systemic threats, leading to currency substitution and undermining domestic financial policies. The Reserve Bank of India (RBI) shares these worries, and Governor Sanjay Malhotra has cautioned against allowing private issuers to supplant sovereign currencies. However, the RBI’s stance has shifted from outright opposition to measured exploration.

4. CBDCs and Stablecoins: Integration or Rivalry?

India is currently testing its central bank digital currency (CBDC), the digital rupee (e₹), in various settings. While it provides similar advantages to stablecoins, it remains centrally regulated and programmable.

Despite this, many experts believe that CBDCs and stablecoins can coexist:

• CBDCs could help achieve domestic monetary policy objectives.
• Stablecoins might facilitate international remittances, cross-border commerce, and tokenised financial services.

Establishing a clear policy on stablecoin issuance, reserves, and compliance could enable India to realise these opportunities, particularly for millions of migrant workers and small to medium enterprises (SMEs).