In the middle of ongoing political unrest in the South Asian country, Sri Lanka has warned its citizens against adopting Bitcoin, claiming it is “mostly uncontrolled”. CBSL, the Central bank of Sri Lanka, reminded the public last week that it has not granted any company or other authority a license to operate in the nation. Neither do they see cryptocurrencies as legal cash in the country. As per Directions No. 03 of 2021 under Foreign Exchange Act, No. 12 of 2017 issued by the Department of Foreign Exchange of CBSL, Electronic Fund Transfer Cards (EFTCs), such as debit cards and credit cards, are not permitted to be used for payments related to virtual currency transactions,” the bank said in the statement posted on its site.
Sri Lankan Rupee has fallen crucially against the US dollar by over 44 per cent. The Sri Lankan economy is stumbling and encountering a currency substitution risk. The country’s political leadership is getting its act together to secure a bailout from the International Monetary Fund. The process is long and time-consuming. In this, some crypto industry expert has noted that the current state of affairs has created a favourable case for crypto adoption by the Sri Lankan population.
“Crypto adoption is generally higher in economies faced with fiscal uncertainty. Like Ukraine, crypto is likely to be used to channel monetary relief for Sri Lankans. Near real-time settlement and low transaction costs make a compelling case for crowdsourcing economic relief using crypto for Sri Lankans,” says Sharat Chandra, vice president of research and analysis of EarthID, a global blockchain company.
In 2021, the government of Sri Lanka formed a panel to suggest a regulatory framework covering the broadening of digital banking, blockchain and cryptocurrency mining. Developing an integrated system of digital banking, blockchain and cryptocurrency mining is significant for Sri Lanka to keep up with its neighbours in the region while growing international trade, said the government-issued press statement.
“However, Sri Lanka confronts unprecedented inflation (up to 70% by some estimates), and a flight towards commodities (gold and silver) is natural at such times. Arguably, if cryptocurrencies retain or gain in value, some flight towards crypto is also likely; especially if it is buoyed up by vested intrastate who aggressively market it as an investment to less informed retail investors,” says Utkarsh Sinha, managing director of Bexley, a boutique investment bank.