The government was not keen to regulate it, and banking regulator Reserve Bank of India (RBI) and market regulator Securities and Exchange Board of India (Sebi) were also keeping distance from regulating it, said sources. However, when a proposal of self-regulation for these exchanges along with the use of blockchain technology was made to the government, it was comfortable with the idea, it is learnt.
The idea of a self-regulated exchange and the use of blockchain technology was first mooted by Sudheesh Nambiath, lead analyst at GFMS TR, at an Indian Merchant Chambers conference held in Mumbai.
Blockchain technology is the backbone of the success of cryptocurrency Bitcoin. While Bitcoin is an unregulated currency, the regulation on the gold exchange will ensure that trading details may be provided from blockchain entries when asked by the government agencies, said sources.
In case of gold exchange, every transfer of gold beginning from import to each trade would be registered on blockchain, including subsequent transfers and sale. Each trade would create a new entry on the blockchain register, which is a public register, but the exchange’s regulations can decide access to the register.
Blockchain technology can work when all gold is sold only on the spot exchange platform, something similar to the Chinese gold exchange model. Since under blockchain gold entries can be created for smaller quantities, even an individual will be able to buy gold on the exchange platform. However all that will happen in subsequent phases, according to sources. In the initial phase, banks and agencies importing gold and refineries in India selling primary gold would sell gold on the exchange and traders would buy from there. The exchange would be an electronic trading platform with both the exchange and the vaults, being part of blockchain.
Subsequently, even when larger bars are converted to smaller bars, they will be mandatory refined in BIS accredited refiners and these bars would be numbered and entered on the same blockchain-based platform. In the long run, every retailer would have to buy from the same platform and each sale and purchase at spot would be registered on blockchain.
The blockchain registry doesn't allow anyone to tamper the records and each buyer and seller is kept anonymous with a unique ID.
Other issues being finalised include India good delivery norms along the lines of standards set by the London Bullion Market Association, modified suitably for Indian conditions as well as a code of conduct to ensure responsible trading on the exchange, a source said on condition of anonymity.
Besides the spot exchange, a committee set up by NITI Aayog under the chairmanship of former finance secretary Ratan Watal will hold its first meeting early next week to discuss a comprehensive gold policy, which will include good delivery standards, responsible gold, revamping gold monetisation scheme etc besides the gold exchange.
As of now, only BSE and Indian Bullion and Jewellers Association have jointly proposed to set up a spot exchange for gold trading.