HomeNewsCentral Bank of Sri Lanka Considers CBDC Introduction amidst IMF Visit

Central Bank of Sri Lanka Considers CBDC Introduction amidst IMF Visit

Date: 22 January, 2024

Key Points 

  • The Central Bank of Sri Lanka is considering a CBDC introduction in the current year.
  • Governor Weerasinghe’s speech did not mention CBDC, but two central bank executives discussed blockchain, cryptocurrency, and CBDC with the Parliamentary Committee.
  • The committee leader sought clarification on the CBDC timeline; the central bank aims for proof of concept and pilot phase without specifying a timeline.
  • Uncertainty surrounds whether advice to defer CBDC came from the recent IMF visit during the country’s recovery from the 2022 financial crisis.
  • Severe crisis led to shortages, protests, and a temporary Presidential step-down; India’s $4 billion assistance averted a more significant fallout.
  • The committee discussed potential QR code deployment for public transport payments, with concerns about feature phone prevalence and basic smartphone functionality.
  • Motivation for CBDC in Sri Lanka includes the desire to curb cryptocurrency adoption, bypassing existing exchange controls with digital assets.
  • The country awaits further developments as the central bank navigates considerations for a potential CBDC rollout.

In a recent press report, there are claims that the Central Bank of Sri Lanka Considers CBDC within the current year. Despite the anticipation, no specific date has been officially provided by the central bank.

When is it likely that Sri Lanka Considers CBDC?

Contrary to the speculation, Governor Dr. P. Nandalal Weerasinghe’s speech on January 10 outlining financial sector policies for 2024 and beyond made no mention of a CBDC. However, on the same day, two central bank executives engaged with the Parliamentary Committee on Ways and Means, sharing fundamental insights into blockchain, cryptocurrency, and CBDC.

Sri Lanka Considers CBDC

During the committee meeting, the leader interrupted the discussion on CBDC, seeking clarification on a potential timeline or action plan. The central bank representative responded by emphasizing the initial proposal of a proof of concept to the central bank board before advancing to a pilot phase. This step aims to assess whether a CBDC aligns with the central bank’s requirements. Although a timeline was not explicitly mentioned, the central bank expressed an eagerness to proceed with the CBDC project in the near future.

It remains unclear whether the advice to defer the CBDC project originated from the recently visited International Monetary Fund (IMF), which coincided with the country’s recovery from a severe financial crisis in 2022. The crisis led to shortages and violent protests, prompting the President to step down temporarily. A $4 billion financial assistance package from India played a crucial role in averting a more significant fallout.

During the committee meeting, discussions around the potential deployment of QR codes for public transport payments surfaced. However, concerns were raised about the widespread use of feature phones in Sri Lanka, impacting the feasibility of QR code implementation. Additionally, a considerable portion of smartphones in the country is basic in functionality.

The motivation behind considering a CBDC in Sri Lanka includes the desire to mitigate cryptocurrency adoption, given existing exchange controls that can be bypassed using digital assets. As the central bank navigates these considerations, the country awaits further developments on the potential rollout of a CBDC.

References:

https://www.ledgerinsights.com/sri-lanka-plans-proof-of-concept-for-cbdc/

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