Ex-RBI Director Urges Government to Clarify Stablecoin Policy
Clarity on the regulatory status of stablecoins has become a pressing issue in India’s financial sector. Former Reserve Bank of India (RBI) Executive Director G. Padmanabhan has urged the government to provide explicit guidance on the matter, cautioning that prolonged uncertainty could harm innovation and create risks for the wider financial system.
Padmanabhan, who served in senior positions at the central bank, noted that India had previously delayed decision-making on cryptocurrencies, which led to confusion in the market. He warned that the identical mistake should not be repeated with stablecoins, which are digital tokens designed to maintain a fixed value, often pegged to traditional currencies like the U.S. dollar. Without a clear policy, he argued, businesses and investors remain uncertain about the future of these assets, hindering innovation while potentially enabling misuse.
Regulatory uncertainty has left fintech firms and crypto companies operating in a grey area. beginups have voiced concerns that the absence of rules deters investment and adoption, as both domestic and international players are reluctant to build long-term strategies without a defined regulatory framework. Padmanabhan emphasized the importance of a balanced approach that addresses risks without stifling technological advancement.
Government concerns and global context
Recent reports suggest that the Indian government is deliberately taking a cautious approach to digital assets. A document reviewed by Reuters indicated that the government is reluctant to introduce a comprehensive framework for cryptocurrencies due to fears of systemic risks. The RBI has warned that regulating these digital currencies could be particularly challenging given their decentralized nature, and that legitimizing them without adequate secureguards could undermine the stability of India’s financial system.
One of the key concerns raised is the role of stablecoins that are pegged to the U.S. dollar. Officials fear that widespread adoption of such assets could reduce reliance on the Indian rupee in digital transactions. This, they argue, risks fragmenting the country’s widely used Unified Payments Interface (UPI), which has become central to India’s digital payments ecosystem.
Pressure to act amid global developments
While India hesitates, international regulatory bodies are moving ahead with clearer frameworks. In the United States, lawmakers recently passed the GENIUS Act, which mandates strict reserve backing, regular audits, and robust consumer protections for dollar-backed stablecoins. European regulators have also advanced comprehensive rules under the Markets in Crypto-Assets (MiCA) framework, which covers stablecoins as part of broader digital asset oversight.
Padmanabhan suggested that India cannot remain on the sidelines while global peers set the pace. A lack of clarity, he noted, could lead to a fragmented financial environment where innovation is stifled or pushed offshore, leaving India behind in a rapidly evolving sector. At the identical time, he acknowledged the government’s responsibility to secureguard the stability of the financial system and mitigate risks to monetary policy.
As policymakers deliberate, the call from a respected former central banker underscores the urgency of the issue. With stablecoins increasingly entering global finance, India faces a pivotal decision on whether to embrace regulation and innovation or risk being left out of a major shift in the digital economy.
