By: Staff Writer
October 07, Colombo (LNW): A quiet but significant financial shift is taking root in Sri Lanka as citizens increasingly turn to cryptocurrencies to protect their wealth amid rising inflation and a depreciating rupee. From tech-savvy youth to small business owners, many are exploring digital currencies as a means to preserve value outside the traditional banking system, creating a rapidly expanding but largely unregulated sector.
Recent studies highlight the scale of this trend. The South Asian Journal of Finance estimates that over 320,000 Sri Lankans currently hold cryptocurrency, while international data from Datawallet projects the number could rise to 1.16 million by 2026. For many, cryptocurrencies are no longer speculative bets they are shields against inflation and currency depreciation.
Most activity occurs on offshore exchanges or through peer-to-peer platforms, as no local service providers are yet licensed. This creates a regulatory grey zone, leaving transactions unrecognised by law and beyond the Central Bank of Sri Lanka’s (CBSL) protective reach. Governor Dr. Nandalal Weerasinghe has repeatedly warned the public that only the Sri Lankan rupee is legal tender, clarifying that while crypto holdings are not banned, they are risky and require careful oversight.
In a move to curb potential money laundering, the CBSL has announced that all Virtual Asset Service Providers (VASPs) will soon be required to register with the Financial Intelligence Unit (FIU). The Bank has proposed amendments to the Financial Transactions Reporting Act (FTRA), currently with the Legal Draftsman’s Department, which will bring crypto service providers under the Act’s remit. The amendments are expected to pass Parliament soon, aligning Sri Lanka with international anti-money laundering and counter-terror financing (AML/CFT) standards ahead of its scheduled mutual evaluation next year.
“After they register with the FIU, these providers must report all transactions conducted through virtual currencies, just as banks do,” Dr. Weerasinghe explained. He emphasised that the measures target service providers facilitating crypto trades, not individuals holding crypto privately. Penalties will apply if providers are found complicit in money laundering. The initiative mirrors global approaches in countries that have not recognised crypto as legal tender but seek to prevent its illicit use.
Despite regulatory caution, global crypto markets continue to surge. Bitcoin trades around US$109,000, up 62.7 percent since late 2024, while Ethereum, Tether, and other cryptocurrencies have also seen substantial gains. Analysts attribute the rally to favourable international regulations, including the United States’ recent Genius Act, which formalised national cryptocurrency oversight, and rising institutional investment.
In Sri Lanka, the growing adoption of crypto reflects a broader desire for financial autonomy amid economic uncertainty. Young professionals and small investors are quietly exploring it to safeguard value, but without domestic legal recognition, they remain exposed. Victims of hacked wallets or failed offshore exchanges have limited recourse, creating a high-risk environment.
The CBSL’s regulatory push represents a critical step toward transparency and accountability. By bringing VASPs under FIU supervision, Sri Lanka aims to curb misuse of crypto while maintaining the flexibility to monitor emerging financial trends. However, the lack of recognition of crypto as a legal asset means the market remains inherently volatile and risky.
As adoption grows, Sri Lanka faces a pivotal choice: regulate and integrate cryptocurrencies responsibly, or allow the sector to remain unregulated, potentially turning a financial innovation into a cautionary tale of unchecked risk. The coming months will reveal whether the nation can balance innovation with investor protection.
