Sri Lanka has a central bank – CBSL. It has issued a stern warning to all citizens. No one was to use cryptocurrencies for monetary transactions. The bank considered them to be majorly, unregulated. As it is, the nation has been under tremendous pressure – both, political and economic – for several months. Therefore, it would not be wise for citizens to even explore Bitcoin Revolution, a great trading website for cryptocurrencies.
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Warning Against Usage of Cryptocurrencies
CBSL clarified that the country had not made digital currencies, legal tender. No exchange/commercial establishment had the authority or license to operate in the country. Any entity would have to approach CBSL for doing so.
The bank had issued similar warnings in 2018, as well as, in 2021. CBSL further stated that it had not granted authorization for ICO. ICO points towards initial coin offerings. Similarly, the bank had refused to give permission for mining operations, and setting up of digital currency exchanges.
Sri Lanka believes that digital currencies are financial instruments. However, there are no safeguards or regulations governing their usage.
Reasons for the Warning
CBSL extended the warning to include the Foreign Exchange Act, No.12, too. The Department of Foreign Exchange, CBSL, had launched this Act in 2017. The focus was on EFTCs, in alignment with the Directions No. 03 of 2021. EFTCs refer to debit cards and credit cards. They are Electronic Transfer Fund Cards. EFTCs could not come into play, as far as digital currency transactions were concerned.
This warning is prominently on display on the CBSL’s official website. The bank found it apt to issue it at this time. It is because the nation’s local economy is facing disaster, thanks to the sovereign-debt crisis. Ever since May 2022, Sri Lanka has been in a default mode. It is striving to gain essential imports from other countries.
Citizens are staring at a record increase in inflation. By June 2022, it had touched 54.6%. The GDP (gross domestic product) standard proves useful for discovering the complete market value of final services and goods. This market value was 1.6% during the first three months of 2022.
Admittedly, Sri Lanka’s local currency was losing its worth. Therefore, many citizens felt it wiser to opt for digital currencies. However, CBSL had already witnessed the crypto winter. It had been observing the crypto crash closely. At the beginning of 2022, the market was standing at $2 trillion. However, over the months, the value lessened to $873.03 billion. The reduction was by 56%.
This was not all. Even flow activities connected to private markets, had reduced. So had the worth of public stock markets. Thus, all these happenings convinced CBSL that its citizens needed to be away from cryptocurrencies.
A Troubled Nation
Attiya Waris is an independent expert in the UN. The expertise relates to human rights and foreign debt. Waris declared that a nation’s debt crisis led to terrible systemic repercussions. The world had viewed this event repeatedly. Such a crisis exposed the serious structural gaps present in the global financial system. In turn, appropriate handling of human rights, suffered.
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This is what has been happening in Sri Lanka. The foreign debt crisis had led to inflation rising to a depth that the country had never seen before. Citizens could not deal with the rising prices of commodities. The shortage of fuel was another misery. Thus, the nation’s economy seems to have completed collapsed.
Additionally, there had been political turmoil, evident for several months. The mishandling of human rights, led to public protests. They began in March 2022. People were facing extreme shortages, concerning medicines, food, and several essential items. Furthermore, the newly-launched economic reforms were not working. These reforms, included servicing debt payments and tax cuts. They made deep dents in the nation’s forex reserves.
The protests prompted G. Rajapaksa, the President of Sri Lanka, to resign. He had to, since protestors even stormed government buildings. After stepping down from his position on July 15, 2022, he fled the country. There is a new leadership in place, today.
Thus, the nation needs time to settle down on all fronts. It is why CBSL is against indulgence in cryptocurrencies. It does not want investors and traders to face losses.