Sri Lanka’s Digital Currency Plan Faces Crypto Resistance

Sri Lanka, a country known for its rich culture, natural beauty, and tea exports, is aiming to launch its own digital currency by the end of 2024. However, the island nation faces challenges in regulating and embracing cryptocurrencies, which are not considered legal tender and are banned from being used with debit and credit cards.

Sri Lanka’s Cash-Driven Economy and Crypto Ban

Sri Lanka has a cash-driven economy, where most transactions are done with physical notes and coins. According to the World Bank, only 30% of Sri Lankan adults have a bank account, and only 4% have a credit card. This limits the access and inclusion of many people to the formal financial system and digital payments.

The Central Bank of Sri Lanka (CBSL) has taken a strict stance against cryptocurrencies, warning the public of the risks and scams associated with them. In January 2021, the CBSL issued a circular prohibiting the use of electronic fund transfer cards (EFTCs) such as debit cards and credit cards for payments related to cryptocurrency transactions. The CBSL also stated that cryptocurrencies are not recognized as legal tender, assets, or securities in Sri Lanka, and that it has not authorized or licensed any entity to operate schemes involving cryptocurrencies.

Sri Lanka’s Economic Woes and Bitcoin Proposal

Sri Lanka’s economy has been struggling in recent years, due to various factors such as political instability, terrorist attacks, natural disasters, and the COVID-19 pandemic. The country’s GDP growth rate declined from 3.3% in 2018 to -3.6% in 2020, and is projected to recover to 3.6% in 2021. The country also faces high inflation, foreign exchange shortages, and heavy debt obligations, which have led to rating downgrades and currency depreciation.

In 2023, American billionaire and Bitcoin advocate Tim Draper visited Sri Lanka and met with President Ranil Wickremesinghe and CBSL Governor Nandalal Weerasinghe. Draper proposed using Bitcoin as a legal tender to combat the corruption and inefficiency that caused the island nation’s hyperinflation. However, his idea was rejected by the authorities, who argued that adopting decentralized cryptocurrencies would worsen the country’s economic condition.

Sri Lanka’s Digital Currency Ambition and Challenges

Despite its anti-crypto stance, Sri Lanka is planning to introduce its own digital currency by the end of 2024, as part of its efforts to modernize and digitize its payment system. The CBSL is studying the feasibility and implications of issuing a central bank digital currency (CBDC), which is a digital form of fiat money that is issued and regulated by the central bank. The CBSL believes that a CBDC can enhance efficiency, inclusion, and transparency in the payment ecosystem.

The CBSL is also developing a national payment platform called Lanka Pay, which will enable interoperability and innovation among different payment service providers. Lanka Pay will offer various services such as mobile payments, QR code payments, online payments, and biometric payments. The CBSL hopes that Lanka Pay and CBDC will increase the adoption and usage of digital payments in Sri Lanka, and reduce the reliance and cost of cash.

However, Sri Lanka faces several challenges in implementing its digital currency plan, such as:

• The lack of digital and financial literacy among the population, especially in rural areas, which may hinder the awareness and acceptance of digital payments and CBDC.
• The lack of adequate infrastructure and connectivity, such as internet access, mobile devices, and power supply, which may limit the availability and reliability of digital payments and CBDC.
• The potential cyberattacks and frauds that may compromise the security and privacy of digital payments and CBDC, and erode the trust and confidence of the users.
• The regulatory and legal uncertainties and complexities that may arise from the coexistence and interaction of CBDC, cryptocurrencies, and other forms of money, both domestically and internationally.

Sri Lanka’s digital currency plan is a bold and ambitious move to transform its payment landscape and catch up with the global trends. However, the island nation will have to overcome the resistance and challenges posed by cryptocurrencies, which are not likely to disappear anytime soon.