Tokenisation of Financial Assets

Tokenisation means turning the ownership of a real asset, like a government bond, a share, a bank deposit or a piece of land, into a digital token recorded on a shared digital ledger. The token works like a digital certificate of ownership. It can be bought, sold or transferred almost instantly, and the record updates for everyone at once. It is the main "underlying technology" use that central banks, including the RBI, support even while being cautious about cryptocurrencies.

Why does it exist?

Today, buying a bond or a share involves many separate record-keepers. The buyer's bank, the seller's bank, a depository, a clearing house and a payment system each keep their own records. They then reconcile (match) them, which takes time. For example, Indian shares settle a day after the trade, and cross-border payments can take days.

During this gap, one side may have paid while the other has not yet delivered. This is called settlement risk. Tokenisation tries to put the asset and the money on the same shared platform, so both move together in one step.

What is the technology behind it?

Tokenisation runs on distributed ledger technology (DLT). A ledger is simply an account book. In a normal system, one central party, like a bank, keeps the only official book. In a DLT, many participants keep identical copies and update them together using agreed rules. Blockchain is the best-known type of DLT. There are two broad kinds:

• Permissionless (public) ledgers: anyone can join, like the Bitcoin or Ethereum networks.
• Permissioned (private) ledgers: only approved members, such as regulated banks, can join. Central banks prefer these for financial markets because they know who is on the system.

How does tokenisation work?

Take a simple example. A company wants to borrow ₹500 crore by issuing bonds.

1. The bond is created as a set of tokens on a permissioned ledger. Each token stands for a fixed part of the bond.
2. Investors pay using tokenised money on the same ledger, ideally wholesale CBDC (central bank money for banks).
3. A smart contract (a small self-running program) checks that the money and the tokens are both there, and then swaps them at the same instant. This is called atomic settlement: either both legs happen, or neither does.
4. Interest payments and repayment on maturity can also be automated by the smart contract.

A simple comparison: today's system is like two people exchanging a car and cash through two different offices that phone each other to confirm. Tokenisation is like a single counter where the key and the cash are handed over in the same second.

What can be tokenised?

• Money: central bank money (wholesale CBDC) and tokenised bank deposits.
• Financial assets: government securities, treasury bills, corporate bonds, certificates of deposit, mutual fund units, shares.
• Real-world assets: real estate, gold, commodities, invoices, carbon credits. Large real estate can be split into small tokens, so a small investor can own a tiny share. This is called fractional ownership.

Benefits claimed for tokenisation

• Faster settlement: near-instant instead of a day or more.
• Lower settlement risk: atomic settlement removes the risk that one side defaults midway.
• Lower costs: fewer intermediaries and less reconciliation.
• Programmability: rules (like who may hold a bond, or when interest is paid) can be written into the token.
• Wider access: fractional ownership opens costly assets to small investors.
• Better cross-border payments: linking tokenised money of different countries on shared platforms could make international transfers faster and cheaper.

How the world is moving on it

• The BIS has proposed a "unified ledger": one programmable platform holding tokenised central bank money, tokenised deposits and tokenised assets together.
• Project Agorá, announced by the BIS on 3 April 2024, brings together seven central banks (Bank of France for the Eurosystem, Bank of Japan, Bank of Korea, Bank of Mexico, Swiss National Bank, Bank of England and the Federal Reserve Bank of New York) with private banks. It tests how tokenised central bank reserves and tokenised commercial bank deposits can be used for cross-border payments.
• In private markets, big fund managers have launched tokenised funds, and the value of tokenised real-world assets grew to over US$30 billion by 2026.

India's position and Indian examples

• Wholesale e₹ (e₹-W): the RBI started this pilot on 1 November 2022, for settling government bond trades between banks. It is the "money leg" that makes tokenised settlement possible.
• Unified Markets Interface (UMI): announced by the RBI at the Global Fintech Fest in October 2025. It is a platform to tokenise financial assets and settle them using wholesale CBDC. A pilot for tokenised certificates of deposit has run on it.
• Deposit tokenisation pilot: the RBI began a pilot of tokenised bank deposits in October 2025.
• Tokenised corporate bond pilot (September 2026): under a SEBI-RBI pilot, REC, Larsen & Toubro and IIFL issued about ₹1,025 crore of corporate bonds in tokenised form, settled with wholesale CBDC.
• Cross-border: the RBI joined BIS Project Nexus on 30 June 2024 with the central banks of Malaysia, the Philippines, Singapore and Thailand, to link fast payment systems like UPI. This is not tokenisation itself, but part of the same goal: faster, cheaper cross-border payments.

The RBI calls this approach "promoting the underlying technologies", sometimes with private partners under a public-private partnership (PPP) model, while staying away from private cryptocurrencies.

Commonly confused concepts

• Asset tokenisation vs card tokenisation: In India, "tokenisation" also refers to card-on-file tokenisation (CoFT). From 1 October 2022, the RBI stopped online merchants from storing customers' card numbers. Instead, a 16-digit token unique to that card and merchant is used. This is a security tool for card payments. It has nothing to do with putting assets on a blockchain. UPSC can test this trap.
• Tokenisation vs cryptocurrency: A crypto coin like Bitcoin usually has no real asset behind it. A tokenised bond is a digital form of a real, regulated asset with a real issuer.
• Tokenisation vs dematerialisation: In 1996, India moved shares from paper certificates to electronic records held in depositories (NSDL and CDSL). That is dematerialisation ("demat"). Tokenisation goes a step further: the record lives on a shared, programmable ledger, and can settle instantly against tokenised money.
• Wholesale CBDC vs retail CBDC: The wholesale e₹ is for banks and big institutions to settle large trades. It is the one that matters for tokenisation. The retail e₹ is for ordinary people's payments.
• DLT vs blockchain: Every blockchain is a DLT, but not every DLT stores data as a chain of blocks.

Issues, criticism and the way forward

• Legal certainty: Laws must clearly say that owning a token legally means owning the asset, and what happens if the platform fails.
• Fragmentation: Many separate platforms that cannot talk to each other could recreate the same old silos. Common standards and interoperability are needed.
• Settlement asset: If tokenised assets settle in private stablecoins instead of central bank money, the "singleness of money" is at risk. The BIS and the RBI argue that tokenised central bank money should anchor the system.
• Cyber and operational risk: smart contracts can have bugs, and shared platforms can be hacked.
• Privacy: shared ledgers must protect confidential trading information.
• Way forward: careful pilots by regulators (RBI, SEBI), clear laws on token ownership, permissioned ledgers for regulated markets, and international cooperation through bodies like the BIS.

Concepts to Know

• Ledger: An account book that records who owns what and who paid whom.
• Settlement: The final step of a trade, when the buyer actually gets the asset and the seller actually gets the money.
• Smart contract: A small computer program stored on a ledger that carries out an agreement automatically when set conditions are met.
• Atomic settlement: A swap where both sides (asset and money) move at the same instant, or neither moves.
• Certificate of deposit (CD): A short-term borrowing paper issued by banks to raise money from investors for a fixed period.
• Bank for International Settlements (BIS): An international organisation based in Basel, Switzerland, owned by central banks. It is often called the "central bank of central banks".
• Interoperability: The ability of different systems to connect and work with each other smoothly.