The global financial system is challenged by the rise of stablecoins, digital tokens pegged to reserve assets such as the US dollar. In July 2025, the US enacted the Guiding and Establishing National Innovation for US Stablecoins Act (GENIUS act), legitimising dollar-pegged stablecoins. It improves regulatory oversight and investor confidence while reinforcing the US dollar’s dominance in digital finance. However, the urgent question for India is whether the global spread of dollar-backed stablecoins accelerates dollarisation and weakens the rupee’s domestic primacy.
Rishi Anand
Partner
DSK Legal
Dollarisation is when the US dollar replaces a domestic currency as a medium of exchange, a store of value or a unit of account. In fragile economies, it may be a short-term response to hyperinflation or a loss of confidence in the local currency. However, dollarisation undermines domestic monetary policy, creating long-term dependence on US monetary direction. Stablecoins peg their value to the dollar and offer efficiency, predictability and low-cost transfers. In countries such as Argentina and Egypt, they are already used as everyday hedges against volatility.
Emerging markets such as India, in which businesses look to speed up cross-border transactions, cannot ignore the appeal of a regulated, official major-currency-backed stablecoin. However, it creates a parallel payments infrastructure, operating outside the domestic banking system. This worries the Reserve Bank of India (RBI), which has already warned of this risk in its financial stability report. It cautions that the widespread use of stablecoins and crypto assets may reduce the effectiveness of monetary policy, circumvent capital flow management, worsen fiscal vulnerabilities and threaten macro-financial stability. Although adoption levels are low, the RBI argues that regulation may inadvertently legitimise these assets. However, because of India’s strong monetary policies, the risk of stablecoin dollarisation is unlikely.
Chirag Jain
Associate
DSK Legal
The government thus maintains partial oversight without recognising the asset, relying on taxation and compliance as deterrents. Should households increasingly save in digital dollars or businesses start using them for foreign trade settlements, the rupee’s role as a unit of account may weaken. This will undermine the RBI’s ability to manage domestic liquidity, contain inflation and respond effectively to economic shocks.
A blanket ban on stablecoins risks driving them underground or offshore, weakening oversight. Unrestrained domestic use risks embedding the dollar into everyday financial activity. The middle ground is to restrict the use of dollar-backed stablecoins for domestic retail payments while permitting their regulated use in cross-border trade and remittances. There must be reserve standards, independent audits, real-time disclosures and the classification of stablecoins as payment instruments or securities. Regulation must be risk-aware, not tax-first, focusing on financial stability rather than revenue.
The European Union, Japan, and Singapore already recognise stablecoins as regulated payment instruments, subject to reserve, redemption and disclosure requirements. They look to harness efficiency without giving up monetary sovereignty. If India remains too cautious or fragmented in its approach, cross-border platforms may switch to dollar-denominated channels, displacing the rupee in regional trade settlements. The country could use its central bank digital currency, the digital rupee (e`), to build an interoperable cross-border payments network with other jurisdictions. This would counter the dominance of dollar-denominated stablecoins and promote the wider use of the e` in trade and for remittances.
The GENIUS act is more than a regulatory milestone. It signals the globalisation of the dollar through digital means. India’s challenge is not merely speculative crypto activity but the structural role of the rupee in the economy. Defence, prohibition and regulation are not sufficient. The response has to be strategic. By strengthening the e`, setting proportionate rules for stablecoin use and aligning with evolving international standards, India can innovate while preserving financial sovereignty. This is not only about a payments infrastructure but about preserving the autonomy of monetary policy in a digitised world order.
Rishi Anand is a partner and Chirag Jain is an associate partner at DSK Legal. Drishti Jain, an associate, also contributed to the article
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