Sri Lanka’s central bank warns against investing in digital assets amid political unrest

The Central Bank of Sri Lanka (CBSL) has issued a notice warning the general public against the use of digital assets. The central bank said that citizens who invest in virtual currencies do so at their own risk as the assets are not unregulated in Sri Lanka.

The press release begins by reminding the public of previous notices stating the same position. In 2018 and again in 2021, the CBSL warned that companies were permitted or licensed to operate virtual currency-related systems, including initial coin offerings (ICOs), trading, investing, or mining bulk rewards.

It also notes that according to a 2021 amendment to its 2017 Foreign Exchange Act, the use of electronic funds transfer cards such as debit and credit cards to make payments related to virtual assets is prohibited. Due to this lack of regulation and outright prohibition, citizens who use digital assets expose themselves to legal and economic risks, among others.

“The public is therefore warned of the possible exposure to significant financial, operational, legal and security risks, as well as customer protection issues posed to users by investments in VCs. The public is also warned not to fall prey to various types of venture capital programs offered through the internet as well as other forms of media,” the notice reads.

Could the review be linked to political unrest in Sri Lanka?

CBSL noted that the notice is issued due to recent developments in the domestic and international digital asset market and the increase in inquiries made to it in this regard. However, the timing also coincided with ongoing political unrest in the South Asian country.

Over the weekend, Sri Lankans protesting rising inflation and tight monetary policy that have led to economic hardship took over President Gotabaya Rajapaksa’s residence in Colombo, forcing him to flee the country.

As The New York Times reported, protesters accuse the president of wrecking the island nation’s economy through corruption and mismanagement. The president has now agreed to step down.

Reports from the country show that some citizens have been converting the local currency into stablecoins to hedge against inflation. Meanwhile, despite criticism of digital currencies, Sri Lanka was previously open to adopting blockchain technology.

CBSL introduced a blockchain-based proof-of-concept KYC solution for the financial industry last year. Sri Lanka also has a committee to study possible applications of digital assets and blockchain technology.

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