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Central Bank mulls digital currency launch before end of 2024

By: Staff Writer

May 27, Colombo (LNW): Sri Lanka’s banking regulator has announced plans to explore a central bank digital currency (CBDC) to improve the country’s financial inclusion and complement cash use.

Plans for a CBDC launch are underway, with leading central bank executives eyeing the end of 2024 as a tentative launch date. The executives appear before the Ways and Means Committee in Parliament, responding to lawmakers’ inquiries related to a CBDC.

Committee Chairman Patali Champika Ranawaka pointed out the absence of a proper structure for online payments in the country, seemingly indicating support for pursuing a retail CBDC. Given the lack of tighter regulations in Sri Lanka’s financial ecosystem, resulting in 45% of all transactions being unregulated.

Central bank officials noted that exploring a retail CBDC is a veritable solution to bring financial transactions within the purview of authorities. The central bank will begin a proof-of-concept (PoC), augmented by a public consultation, before proceeding with a phased pilot to test real-world scenarios.

Sri Lankan lawmakers doubted the timeline for the CBDC plans over fears of a potential disruption to the financial ecosystem. Members of parliament are pushing for a cautious approach toward rollout despite the lack of regulatory control and supervision over a chunk of the financial system.

Alongside plans for a CBDC launch is the proposed launch for Lanka Pay, a national payment network to support real-time interbank transfers. During the meeting with the MPs, the central bank executives mulled over the prospects of integrating a QR code system into the financial ecosystem.

To bring the financial system under control, initial plans will see the migration of payment systems used by the Inland Revenue Department and Customs to blockchain-based platforms.

Committee members tasked the central bank to conduct a comparative analysis of payment systems employed by India and Bangladesh and make a report within 14 days.

In the process of introducing digital Currency (CBDC), it is essential to integrate Real-Time Gross Settlement (RTGS), Common Electronic Funds Transfer Switch (CEFTS), payment cards QR payment platform (Lanka QR) and the Government Digital Payment Platforms.

Central bank digital currencies can improve payment systems as well as financial inclusion—if they are appropriately designed. If not, they could pose risks. IMF sources revealed. .

While not all countries may see an immediate case to deploy a CBDC, many countries are exploring CBDCs so they will have the option to introduce one in the future if it becomes pertinent for them.

Benefits are more likely to come in time, following the policies pursued by countries and the private sector’s response, as well as the evolution of technology, International Monetary Fund (IMF) stated.

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