India mulls allowing crypto tokens for financial transactions

The government of India is considering allowing crypto tokens for facilitating financial transactions in the country, while maintaining its ban on cryptocurrencies, DNA India reported.

Sources familiar with the matter told the news outlet that a committee exploring the use of crypto assets is working on the regulatory aspect as well as specific actions, such as a roadmap to allow cryptocurrencies in the future. Following a legal scrutiny of the draft regulations, it will be tabled before the Parliament.

DNA India explained that unlike cryptocurrency, blockchain-based crypto token is a “representation of money” and “can't be used in place of fiat money.”

"The committee is examining if crypto tokens can be used to replace smart cards such as metro cards in the public sector to start with. Similarly, in the private sector, it can be used in loyalty programmes such as air miles where its use is limited to buying the next ticket and can't be converted into money," said a senior official in the ministry.

The Inter-Ministerial Committee (IMC) has been set up by the Ministry of Finance under the chairmanship of the Department of Economic Affairs (DEA) secretary. It comprises of members from the Reserve Bank of India (RBI), the Securities and Exchange Board of India (SEBI) and the IT ministry.

"The committee is studying the possibility of using cryptocurrencies or the crypto technology (distributed ledger technology) for financial transactions and also what kind of regulations are needed for that," said DEA secretary Subhash Chandra Garg who is heading the committee, adding that the new technology has a lot of promise.

While "the [crypto]currency is totally banned, the committee is discussing its other usage and how it can be mainstreamed in India," he said, while categorically denying allowing cryptocurrencies in any manner including payment systems.

A senior official explained that users will need to pay physical money to buy a crypto token, which could be stored as a code in mobile phones. Crypto token is easy to implement from technology and regulatory point of view, unlike cryptocurrencies, the official added.

The committee was scheduled to give its report in July. Garg said, "This is a difficult subject, involving technology which is changing every now and then. That's why it is taking some time. As soon as we are able to complete our work we will be to come out with it. It is not advisable to give a timeline.”