Recent developments in US crypto policy have disrupted global regulatory efforts. The Trump administration’s 2025 Presidential order proposed creating a crypto asset reserve, banning central bank digital currencies (CBDCs), promoting US dollar-backed stablecoins, and halting global crypto regulations. This reversed years of progress in regulating digital currencies and sparked worldwide debate on the future of money.
Trump Administration’s Crypto Directives
Recently, the US government issued a controversial order. It suggested seizing crypto assets like bitcoin for a strategic reserve. It also prohibited CBDCs, the digital form of fiat currency issued by central banks. Instead, it pushed for US dollar-backed stablecoins to grow globally. The order paused work on a global crypto regulatory framework. These moves were framed as innovation-friendly but risked reviving unregulated crypto market problems.
About CBDCs and Stablecoins
CBDCs are digital currencies issued and guaranteed by central banks. They serve as legal tender and maintain system liquidity and currency stability. Stablecoins are privately issued digital tokens backed by stable assets like the US dollar. While more stable than cryptocurrencies like bitcoin, stablecoins lack sovereign backing and regulatory control. This makes them vulnerable to default, money laundering, and liquidity risks.
Risks of Stablecoins
Stablecoins can be misused for illicit activities such as money laundering and terrorism financing. Their private issuance means central banks cannot control their supply or monitor end-use effectively. Excessive stablecoin issuance may destabilise currency value and liquidity. The GENIUS Act proposes limited issuance by government-approved entities and mandates anti-money laundering compliance and audits. However, monitoring challenges remain.
US Promotion of Stablecoins
The GENIUS Act, linked to former President Trump, aims to boost US dollar stablecoins globally. Trump claims this will drive massive investments and innovation. The move also appears to benefit Trump’s family crypto ventures, including a $2.6 billion USD stablecoin operated by his sons. The policy hopes to strengthen the dollar’s dominance through private stablecoins.
India’s Position on Crypto Assets
India’s vibrant UPI payment system reduces the need for stablecoins or CBDCs domestically for now. India should focus on developing its own CBDC, especially for international payments. The global trend shows increasing interest in CBDCs for trade settlements, not dollar-backed stablecoins. With BRICS and other global South countries pushing to reduce dollar dependence, stablecoins are unlikely to replace CBDCs in global trade.
Global Impact and Future Outlook
The US policy shift unsettles global crypto regulatory consensus. Other nations are cautious about abandoning CBDC projects in favour of stablecoins. CBDCs are seen as the future of fiat currency worldwide. The US stablecoin push may face resistance amid efforts to diversify away from dollar dominance in global finance.
Questions for UPSC:
- Critically analyse the implications of private stablecoins on national financial stability and regulatory frameworks with suitable examples.
- Explain the concept of Central Bank Digital Currency (CBDC) and discuss its potential impact on international trade and currency sovereignty.
- What are the challenges faced by countries in regulating cryptocurrencies? How do these challenges affect global financial security?
- With suitable examples, comment on the role of digital payment systems like India’s UPI in shaping the future of financial inclusion and digital currencies.
Answer Hints:
1. Critically analyse the implications of private stablecoins on national financial stability and regulatory frameworks with suitable examples.
- Private stablecoins lack sovereign backing, increasing default and liquidity risks.
- They can be misused for money laundering, terror financing, and illicit cross-border transfers.
- Central banks have limited control over their issuance, complicating liquidity and monetary policy management.
- Examples – US GENIUS Act proposes regulated issuance but monitoring end-use remains challenging.
- Unregulated stablecoins have historically led to investor losses and systemic risks (e.g., unregulated exchanges in early crypto era).
- Stablecoins can undermine currency sovereignty and cause imbalance in external accounts if unchecked.
2. Explain the concept of Central Bank Digital Currency (CBDC) and discuss its potential impact on international trade and currency sovereignty.
- CBDC is a digital form of fiat currency issued and guaranteed by a country’s central bank.
- It serves as legal tender, ensuring trust, liquidity, and currency stability.
- CBDCs enable efficient, secure, and low-cost domestic and cross-border payments.
- They strengthen currency sovereignty by maintaining central bank control over money supply.
- In international trade, CBDCs can facilitate bilateral settlements in local currencies, reducing dollar dependence.
- Global projects (e.g., BRICS, Atlantic Council tracker) show rising CBDC adoption for trade and financial integration.
3. What are the challenges faced by countries in regulating cryptocurrencies? How do these challenges affect global financial security?
- Cryptocurrencies’ decentralized and pseudonymous nature hinders effective regulation and monitoring.
- Cross-border transactions complicate jurisdiction and enforcement of laws.
- Lack of global consensus delays unified regulatory frameworks.
- Risks include money laundering, terror financing, fraud, and market manipulation.
- Volatility and unregulated exchanges threaten investor protection and systemic stability.
- Global financial security is compromised by illicit flows and potential liquidity shocks.
4. With suitable examples, comment on the role of digital payment systems like India’s UPI in shaping the future of financial inclusion and digital currencies.
- UPI offers instant, interoperable, and cost-effective digital payments accessible via mobile phones.
- It has driven mass financial inclusion by bringing millions of previously unbanked users into the digital economy.
- UPI’s success reduces immediate need for stablecoins or CBDCs for domestic payments in India.
- It enhances transparency, reduces cash dependency, and supports government welfare schemes.
- Example – UPI’s explosive growth during COVID-19 pandemic accelerated digital adoption across urban and rural areas.
- UPI provides a foundation for integrating future digital currencies, including CBDCs, into existing payment ecosystems.
