CBDCs, Stablecoins, and the Question of Coexistence

Digital Assets

Digital money is no longer an experimental edge case in global finance. By the end of 2025, more than one hundred jurisdictions will be actively researching or piloting central bank digital currencies, while stablecoins have become a persistent feature of cross-border payments, crypto markets, and increasingly, institutional settlement. The policy question has shifted accordingly. The issue is no longer whether CBDCs or stablecoins should exist, but how they can coexist within a coherent monetary and regulatory framework.

Central banks entered the digital currency debate to solve specific structural problems. Retail payment systems required greater resilience and public oversight as private platforms scaled rapidly. Cross border settlements remained slow, costly, and fragmented. At the same time, the emergence of large private digital currencies raised concerns around monetary sovereignty, regulatory arbitrage, and systemic risk. CBDCs were conceived as a response to these pressures, extending sovereign money into digital form while retaining central bank control over issuance and settlement.

Comparison of digital currencies: Unbacked Crypto-Assets (e.g., Bitcoin) are not tied to fiat currency and lack backing or redemption rights. Stablecoins (e.g., Libra, JPM Coin) may be pegged to a currency or basket, with varying backing and redemption rights. Reserve-backed stablecoins (e.g., RBBC, Synthetic CBDC) are pegged to a single currency, backed by central bank reserves, with a promise of equivalent fiat exchange.

India’s approach reflects this institutional logic. The Reserve Bank of India has continued to expand both retail and wholesale CBDC pilots through 2024 and 2025, with a focus on programmability, offline functionality, and interbank settlement efficiency. Public disclosures indicate that the retail pilot has crossed several million users, while the wholesale pilot has been tested for government securities settlement and interbank transfers. The RBI has consistently emphasised a phased approach, prioritising financial stability, data protection, and the role of regulated intermediaries rather than direct central bank accounts for citizens.

Stablecoins emerged from a different economic context. Initially designed to provide price stability within crypto markets, they addressed a practical need for settlement instruments that could move across platforms and borders without the friction of correspondent banking. By 2025, global stablecoin circulation will exceed one hundred and fifty billion US dollars, with dollar-backed instruments accounting for the majority of volume. Their use has expanded beyond trading into remittances, treasury management for digital firms, and pilot applications in supply chains and capital markets.

This growth has forced a regulatory reckoning. Major jurisdictions have moved to define clear requirements around reserve composition, custody, redemption rights, and disclosure. The European Union’s Markets in Crypto Assets framework now treats certain stablecoins as regulated payment instruments. In the United States, legislative proposals focus on bank-level supervision for issuers and strict reserve segregation. International bodies such as the Financial Stability Board have framed stablecoins as potential systemic actors rather than niche products.

India’s position has also evolved. While the regulatory stance remains cautious, recent public statements from senior policymakers reflect an acknowledgement that fiat-backed stablecoins cannot be ignored in a globalised financial system. The emphasis has shifted toward preparedness, supervision, and alignment with broader financial stability goals rather than outright exclusion. This marks a notable change from earlier positions that viewed stablecoins primarily through the lens of risk.

The emerging consensus points toward functional coexistence. CBDCs are likely to serve as the core settlement asset of the digital monetary system. They provide finality, legal certainty, and a direct channel for monetary policy transmission. Stablecoins, by contrast, may operate at the periphery, supporting specific use cases such as cross-platform settlement, programmable payments, or international transfers, subject to strict regulatory conditions.

This coexistence, however, is not automatic. Without shared infrastructure, the proliferation of digital money instruments risks recreating the very fragmentation policymakers seek to avoid. Identity verification, ownership records, transaction traceability, and compliance checks cannot be redesigned separately for each instrument. They require common reference points and interoperable registries.

Here, India’s digital public infrastructure offers an instructive parallel. Aadhaar established a trusted identity layer at the population scale. UPI demonstrated how a public payment rail could enable intense private innovation without ceding systemic control. DigiLocker normalised the use of verified digital documents across sectors. These systems did not eliminate private participation, but anchored it within a common trust framework.

Applying similar principles to digital money suggests that the real challenge lies beneath the instrument layer. Trust registries that record identity, account relationships, asset ownership, and compliance status become the foundation that allows multiple forms of digital value to operate within a single system. Without them, oversight becomes reactive and fragmented. With them, supervision can be embedded and automated.

SUTRA’s work addresses precisely this connective layer. By focusing on shared trust registries and interoperable architecture, it responds to a structural gap that neither CBDCs nor stablecoins can resolve on their own. The objective is not to blur the distinction between sovereign and private money, but to ensure that both operate within a verifiable and accountable framework that supports scale without undermining stability.

The future of digital money will not be defined by a single instrument or policy choice. It will be shaped by the quality of the infrastructure that connects instruments, institutions, and jurisdictions. In that sense, coexistence is not a compromise. It is a design problem, and trust is the system constraint that will determine whether digital money strengthens or fragments the financial order.

References

1. Bank for International Settlements. Annual Economic Report 2024: The Next-Generation Monetary and Financial System. Basel: BIS, 2024.

2. Bank for International Settlements. Committee on Payments and Market Infrastructures. Central Bank Digital Currencies: A New Tool in the Payments Landscape. Basel: BIS, 2023.

3. European Parliament and Council of the European Union. Regulation (EU) 2023/1114 on Markets in Crypto-Assets (MiCA). Official Journal of the European Union, 2023.

4. Financial Stability Board. Global Regulatory Framework for Crypto-Asset Activities. Basel: FSB, 2023.

5. International Monetary Fund. Central Bank Digital Currency: A New Form of Money? IMF Staff Discussion Note, Washington DC, 2023.

6. Reserve Bank of India. Concept Note on Central Bank Digital Currency. Mumbai: RBI, 2022.

7. Reserve Bank of India. Annual Report 2023–24. Mumbai: RBI, 2024.

8. Reserve Bank of India. CBDC Pilot Project Updates. Press releases and speeches, 2023–2025.

9. World Economic Forum. The Future of Digital Money: Policy and Governance. Geneva: WEF, 2024.