As the global interest in cryptocurrencies grows, Sri Lanka faces several challenges and uncertainties related to this new form of digital money. The Committee on Public Finance (COPF) warned about Sri Lankans’ increasing investments in cryptocurrencies and their potential risks to the country’s financial stability.
Cryptocurrencies are virtual currencies created and exchanged using cryptography to secure and verify transactions. Unlike traditional currencies, cryptocurrencies are not issued or backed by any central authority, such as a government or a bank. This makes them attractive to investors seeking anonymity, decentralization, and innovation.
However, cryptocurrencies also come with high volatility, complexity, and uncertainty. They are subject to hacking, theft, fraud, and manipulation. They are also affected by regulatory changes, technological developments, and market sentiments.
In Sri Lanka, digital currencies are not regulated or recognized as an asset class. This means that there is no legal protection or recourse for investors who engage in cryptocurrency transactions. The public is advised that digital currencies are risky and speculative investment instruments that may result in significant losses.
Crypto Misuse Concerns In Sri Lanka
The COPF chairman, Dr. Harsha de Silva, raised concerns about using digital assets platforms for illicit purposes. He asked the officials if they knew of cases where Sri Lankans were converting their rupees to USDT. This virtual currency is pegged to the US dollar, and funds are transferred abroad or invested in other digital currencies.
The officials replied that they were unaware of such cases, but they promised to conduct a thorough investigation. They stressed that exchanging rupees for dollars outside the formal channels was not allowed and that they would look into the potential abuse of unofficial avenues for currency exchange and investment.
The COPF chairman also noted the need for a regulatory framework for digital currencies, which Sri Lanka currently lacks. He said digital currencies were recently recognized as an asset class by the US Securities and Exchange Commission, which approved the first exchange-traded fund for virtual currencies last week.
On the other hand, a senior Finance Ministry official reported that crypto-related illicit activities had increased in Sri Lanka, along with the popularity of the crypto market. He said the Central Bank had recently banned nine pyramid schemes involving virtual currencies. These schemes promised high returns to investors, but they were fraudulent and unsustainable.
The official said banning the schemes was a positive step to ensure the country’s financial security. Still, he also highlighted the challenges of prosecuting the culprits and recovering the defrauded money. He said that the existing issue in the Sri Lankan crypto market was hidden behind the apparent issues, which emphasized the need for a regulatory framework.
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