Thursday, August 11, 2022

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C B warns of the usage of virtual currencies such as cryptocurrency

Sri Lanka’s Central Bank has not yet approved the usage of virtual currencies including the cryptocurrencies for transactions and those who use them for transactions should bear the risks of any eventualities,Central Bank announced.

Considering the recent developments in relation to virtual currency usage in the international and domestic markets as well as the inquiries related to virtual currency, the Central Bank has warned of the possible exposure to significant financial, operational, legal and security related risks as well as customer protection concerns posed to the users by investments in VCs.

The public is also warned not to fall prey to various types of VC schemes offered through the Internet as well as other forms of media.

However The Central Bank that print money, lower living standards and create social unrest have block the evolution of new money as well as the adoption of existing stable money through legal tender laws.

Sri Lanka’s Colombo Port City has freed its residents from existing de facto and de jure legal tender restrictions by being a dollarized area.

Virtual Currencies (VCs) are largely unregulated digital representations of value that are issued by private entities and can be electronically traded.

CB has not given any license or authorization to any entity or company to operate schemes involving VCs, including cryptocurrencies, and has not authorized any Initial Coin Offerings (ICO), mining operations or Virtual Currency Exchanges.

Furthermore, as per the 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.

Therefore, VCs are considered as unregulated financial instruments and have no regulatory oversight or safeguards relating to their usage in Sri Lanka.

Sri Lanka’s cabinet of ministers appointed a committee to look into blockchain and cryptocurrency use in the country.

Blockchain is a tool to transact via electronic means, which can also be used for Central Bank money, but crypto currencies are electronic money with their own anchor.

Crypto currencies such as Bitcoin and Ethereum are being traded widely in exchanges but their use for transactions, debt or deposits (denominational currency) is limited or non-existent.

Central banks have also started offer virtual currencies to make use of new clearing technologies such as blockchain and also to compete against the rapidly evolving cryptocurrencies..

“There is no specific law on cryptocurrency,” TMJYP Fernando, the Central Bank’s Deputy Governor told reporters recently .

“But we have informed the general public about the dangers of engaging in that currency. So, the people who have engaged in this will have to bear the risk of that.”

While Cryptocurrencies not come into general use yet, partly due to high transaction costs, they have been in use for some criminal activities due to their anonymity, just like central bank paper cash, which are used for illegal activities now rather than bank accounts.

There have also been concerns raised about cryptocurrency exchange operators.

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