Aug
Why Stablecoins Are Unlikely to Be Adopted in India
A combination of central bank concerns and market traits will be the limiting factors in the adoption of stablecoins in India.
Stablecoins have garnered interest from investors worldwide, with the volume of stablecoin transfers increasing tenfold in the last four years1. However, for a developing country like India, stablecoins’ popularity poses an existential threat to policy sovereignty — and they are far from the ideal cultural fit for the market.
To understand why stablecoins are unlikely to be adopted widely in India, it’s important to understand the context.
Steady Growth in World Markets
Stablecoins continue to be a pivotal part of the cryptocurrency ecosystem, with significant growth in market capitalization of $165 billion as of August 2024, due to increased adoption across various sectors and the ongoing development of regulatory frameworks.
The market’s expansion has been fueled by several factors, including the integration of stablecoins into mainstream financial operations and the rise of Central Bank Digital Currencies (CBDCs). The fact that companies like Visa and PayPal have adopted stablecoins as part of their settlement process reflects their growth and acceptance as they move toward mainstream financial integration.
The charts below show the expansion of stablecoins, not only over the past 30 days, but also in recent years.
Use Cases of Stablecoin
Stablecoins aren’t just reshaping traditional finance by enabling wealth or market participation — they also offer a number of strategic benefits, especially for tokenised real-world assets (RWAs). Below is a quick breakdown of some of their key advantages.2
Medium of Settlement: Traditional settlement processes can be slow and costly, especially for cross-border payments. Stablecoins offer a more efficient and cost-effective alternative, allowing for near-instantaneous settlement of transactions.
Store of Value: By providing stability, midst the crypto market fluctuations, stablecoins offers a haven and preserve their value.
Transparency: Stablecoin transactions are auditable in real-time, ensuring transparency.
Privacy: Stablecoins reduce the risk of identity theft and fraud by providing enhanced privacy features, offering users a more secure means of conducting financial transactions.
Liquidity: Stablecoins provide liquidity for crypto traders, increasing trading opportunities and improving market efficiency.
Despite their popularity for trading, remittances, and decentralized finance (DeFi), stablecoins are facing increasing regulatory scrutiny worldwide.
The Reserve Bank’s Reservations about Stablecoins
The Reserve Bank of India (RBI) has expressed concerns about stablecoins, viewing them as a potential threat to monetary policy and financial stability. In a country with over 1.4 billion people, the widespread use of stablecoins could undermine the sovereign control over currency and the effectiveness of monetary policy3.
The RBI has several key concerns about stablecoins:
Risk of dollarization. Large stablecoins linked to other currencies (as on Jan 2023, USD-denominated stablecoins account for 98% of all stablecoins)4 could potentially replace the use of the Indian rupee in the local economy.
Decentralization and interoperability. Stablecoins issued by private entities can operate in a decentralized blockchain. As such, anyone with an internet connection can use them, with no need to have access to traditional banking systems and interoperable within the crypto ecosystem. This is in sharp contrast to central bank digital currencies (CBDCs), which are limited to specific networks or platforms.
CBDCs are seen as safer. Global stablecoin regulation has become a sticking point between the G7, which represents advanced economies, and the G20, which represents emerging and advanced economies. India, which held the G20 presidency until 2023, views CBDCs as being more likely to offer more stable solutions for the G20 countries because they are centralised and governed by policies and regulation.5
Indian Payments Market Traits That Will Prevent Widespread Stablecoins Adoption
Beyond the viewpoint of the RBI, there are several market factors which could keep stablecoins from gaining widespread adoption in India.
#1 Reliance on Cash
India has a large population that is still heavily reliant on cash for daily transactions, with cash constitutes 70-90% of all transactions by volume. This preference is especially marked in the country’s semi-urban and rural areas, where trust in digital financial systems remains extremely low.
#2 Trust in Centralized Institutions
Stablecoins, which are issued by private entities, will not pass the test of credibility for a population that values the tangibility and the perceived safety of traditional banking.
#3 Digital Divide
India has considerable digital divide in semi-urban and rural areas, where internet penetration and smartphone usage are lower. Issues like lack of awareness, education, and the need for digital infrastructure investment further complicate the adoption potential of stablecoins.
#4 Voice of the Regulator
The government has expressed concerns and ambiguity in its position on cryptocurrency — citing the potential risk of money laundering and threats to monetary sovereignty — and in 2021, it prepared a bill to ban cryptocurrencies. While it held the presidency of the G20, India called for a global framework to regulate this asset class. Moreover, the RBI’s push for its own CBDC —as opposed to the uncertain and restrictive nature of stablecoins — will make CBDCs an easier choice for the common people.
Conclusion
Stablecoin have grown in popularity with over 200 listed stablecoins (as of 2024) alongside traditional finance and are expected to increase their role in the crypto ecosystem. Despite the expectation that stablecoins will provide stability amidst the crypto market fluctuations, they are not immune to fluctuations in price, market capitalization and liquidity. Overall, stablecoins will struggle to gain widespread adoption in India due to the country’s deep-rooted preference for cash and the socio-cultural reliance on traditional financial systems, along with the regulatory landscape in India, which clearly prefers a more centralized CBDC.
If you’re navigating the complex world of stablecoins and digital currencies in India or other markets, contact us at PCMI to discover how our tailored payment intelligence solutions can support your strategy
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Sources
- Stablecoin Statistics: Coin gecko Report ↩︎
- Potential Use Cases of Stablecoins, By Jordan Adams ↩︎
- Stablecoins Pose ‘Existential Threat’ to Policy Sovereignty, Says RBI Senior Official ↩︎
- Stablecoin Regulation Is a Sticking Point Between the G7 and G20 Emerging Economies ↩︎
- Stablecoin Statistics: Coin gecko Report ↩︎
