It’s time to tokenize sovereign debt now that India’s e-rupee is ready to help finance evolve

Subscribe to enjoy similar stories.At the Global Fintech Fest in Mumbai last year, the governor of the Reserve Bank of India (RBI) announced the launch of a “next-generation financial market infrastructure,” designed to “tokenize financial assets and settlements.” While it received no more than a passing mention in his speech, the Unified Markets Interface he mentioned appears to be an early signpost of the direction in which the digitization of India’s financial sector is likely to progress. To understand the significance of this announcement, it is important to be clear about what a tokenized asset is and how it works.

Tokenization is the process of representing a financial asset as a digital entry on a shared ledger, so that the entry itself becomes the asset, rather than a record pointing to one held elsewhere. A tokenized asset is, therefore, a digital artefact that carries within it information about what the asset is, who owns it, what payments are due against it, and the rules governing its transfer.

To transfer the ownership of a tokenized asset, you need to move the entry itself.If this sounds similar to dematerialized shares, the difference lies in the ledger. Demat shares are held in the depository’s database, and when one is bought or sold, the transaction is communicated via telecom messages, and balances get settled through end-of-day reconciliations.A tokenized asset ledger on the other hand is a single digital record that multiple participants can see and update in accordance with agreed rules.