India is preparing to launch its first fully collateralized rupee-backed stablecoin in early 2026, a strategic move designed to keep domestic capital from flowing into dollar-denominated digital assets that threaten to drain emerging market banking systems.
The Asset Reserve Certificate, or ARC, developed by Ethereum scaling giant Polygon and Bengaluru-based fintech firm Anq, could go live in the first quarter of 2026, sources familiar with the matter told CoinDesk. Each token will trade 1:1 with the Indian rupee and will be minted only when issuers acquire qualifying reserves such as government securities, treasury bills, or cash equivalents.
The initiative arrives as emerging markets face an unprecedented threat from dollar-backed stablecoins. Standard Chartered recently warned that up to $1 trillion could exit emerging market bank deposits into stablecoins by 2028, as savers increasingly seek access to digital dollars outside their local banking systems.
India's response represents a fundamental rethinking of how sovereign nations can compete in the digital asset economy while protecting their monetary systems.
A Two-Tier Framework to Preserve Monetary Sovereignty
Unlike private stablecoins that operate independently of central banks, ARC is explicitly designed to complement the Reserve Bank of India's Central Bank Digital Currency rather than compete with it.
The architecture establishes what developers call a "twin-rupee framework." The RBI's digital rupee remains the official settlement layer, maintaining sovereign control over monetary policy and acting as legal tender. ARC operates as a programmable layer built by regulated private entities, enabling innovation in payments, remittances, and smart contracts within a compliant environment.
This structure mirrors India's approach with the Unified Payments Interface, where private sector development occurred within government-established rails. The result kept India's digital payments ecosystem domestic while enabling rapid innovation that made UPI responsible for 49% of global real-time digital transactions.
The RBI maintains full control over the monetary base under this model. Central bank oversight remains absolute, all within the boundaries of India's financial and regulatory system.
Backed by Government Securities, Not Foreign Reserves
The distinguishing feature of ARC lies in its reserve structure. Each token must be backed 1:1 by Indian Government Securities or Treasury Bills, creating what project documentation describes as "a sovereign-backed digital instrument" rather than another speculative cryptocurrency.
This design serves dual purposes. For users, it provides transparency, safety, and compliance that dollar-backed stablecoins like Tether and USDC cannot offer within Indian regulations. For the government, it generates demand for domestic debt instruments since every ARC token minted requires the purchase of government securities.
The mechanism could effectively lower borrowing costs for the Indian government while channeling digital asset growth into sovereign debt markets rather than U.S. Treasuries. Project documentation frames this explicitly: this is intended to strengthen India's balance sheet, not foreign ones.
Critically, only business accounts will be authorized to mint ARC tokens. This restriction ensures compliance with the Liberalised Remittance Scheme rules governing individual foreign exchange transactions and aligns with the rupee's partial convertibility, which remains restricted for capital account transactions to protect economic stability.
Defending Against the Dollar Stablecoin Threat
India's urgency reflects mounting concerns about capital outflows accelerated by U.S. regulatory developments. President Trump signed the GENIUS Act into law on July 18, 2025, establishing the first comprehensive federal framework for dollar-backed stablecoins with 100% reserve backing requirements.
While strengthening dollar hegemony, the GENIUS Act raises alarms for emerging economies. Standard Chartered's research indicates that two-thirds of current stablecoin holdings already belong to users in emerging markets, functioning as de facto dollar bank accounts.
The bank identified India among nations most vulnerable to deposit flight. Significant dollar stablecoin adoption would mean Indian liquidity supporting U.S. Treasury demand rather than domestic government securities.
ARC addresses this by offering Indians the benefits of stablecoins—fast transactions, programmability, 24/7 access - without capital flight risk.
Technical Architecture and Compliance
The ARC ecosystem will use Uniswap v4 protocol hooks to restrict swaps exclusively to whitelisted addresses, ensuring only verified counterparties can participate in decentralized trading.
Polygon's selection as infrastructure partner reflects both technical and strategic considerations. The network brings proven tokenization experience from working with large asset managers and stablecoin projects. The earlier partnership between Polygon and Reliance Jio, which aims to bring blockchain capabilities to 450 million users, demonstrates the network's capacity for India-scale deployment. Anq contributes local regulatory and payments expertise essential for any sovereign-linked digital asset.
ARC enters a market where the RBI has already laid groundwork through its CBDC pilots. The digital rupee reached circulation of 10.15 billion rupees ($120 million) by March 2025, with 17 banks and 6 million users engaged. However, RBI Deputy Governor T. Rabi Sankar stated in October that stablecoins "carry a huge risk of replacing your currency and policy sovereignty".
ARC navigates this tension by positioning itself as a regulated complement to the CBDC. The digital rupee handles official settlement while ARC enables programmable commercial applications under central bank oversight.
The project has generated both enthusiasm and criticism. Some crypto commentators argue ARC remains a fully centralized system that contradicts decentralization principles. Developers counter that the goal is tokenization for strengthening India's financial infrastructure, not enabling anonymous value transfer.
Final thoughts
If successful, ARC could provide a template for other emerging markets seeking to counter dollar stablecoin adoption without banning digital assets entirely.
Standard Chartered's analysis suggests that emerging market stablecoin savings could grow from approximately $173 billion to $1.22 trillion by 2028. Nations that develop domestic alternatives may retain liquidity that would otherwise exit to dollar-denominated systems.
For India, the stakes extend beyond finance. The country processes nearly half of global real-time digital transactions through UPI. Ceding the stablecoin market to dollar-backed competitors would represent a strategic retreat in a domain where India has established clear leadership.
ARC represents India's bet that sovereign-backed digital assets can compete with dollar stablecoins by offering comparable functionality within a more trustworthy regulatory framework. Whether users value that tradeoff will determine whether the token achieves meaningful adoption when it launches in early 2026.