Amid economic and political turmoil, the Central Bank of Sri Lanka, or CBSL, has warned the public against crypto purchases due to the lack of regulatory oversight.
In a Tuesday notice, the CBSL said it has not authorized or licensed any company in Sri Lanka to offer crypto-related services, including exchanges, initial coin offerings and mining. The central bank said the warning was in response to “recent developments in relation to virtual currency usage,” likely referring to the market downturn and significant volatility in the prices of cryptocurrencies like Bitcoin (BTC).
Virtual currencies “... are considered as unregulated financial instruments and have no regulatory oversight or safeguards relating to their usage in Sri Lanka,” said the CBSL. “The public is therefore 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 announcement came amid inflation in Sri Lanka reaching more than 54% in June as the SBSL bank raised interest rates to 15.5%. According to data from the central bank, inflation is roughly 45% at the time of publication, affecting the cost of living for the 22 million people living in Sri Lanka.
On Saturday, hundreds of protestors stormed Sri Lankan President Gotabaya Rajapaksa's residence in Colombo, reportedly seizing 17.8 million rupees — roughly $50,000 at the time of publication — as well as taking control of the building, using the facilities and eating food in storage. Thousands of Sri Lankans have also taken to the streets of the capital city in protest of the government’s response to the economic situation. Parliament speaker Mahinda Yapa Abeywardena said that Rajapaksa will be resigning on Wednesday.
Though publicly expressing warnings on crypto, Sri Lanka’s central bank previously helped develop a Know Your Customer proof-of-concept project as part of a government initiative aimed at exploring using blockchain and crypto mining. Some social media users claiming to be in Sri Lanka have also said they will hold stablecoins like USD Coin (USDC) as a hedge against the country’s high inflation and bankruptcy.
In a fresh episode of the longstanding battle between the Central Bank of Russia (CBR) and the country's Ministry of Finance, representatives of the former have criticized the latter’s idea of supporting the stablecoins, which some private investors have sought to launch in the country.
According to local media, an unnamed representative of the central bank dismissed talk of Russia-based stablecoins, started last week by the Ministry of Finance’s director of financial policy department Ivan Chebeskov.
Back then, Chebeskov voiced his ministry’s support for creating stablecoins tied to assets like “the ruble, gold, oil or grain.” He called it “the right path for developing new technology” and urged private companies to try this kind of financial tool if they find it necessary.
The CBR speaker said that private stablecoins “are characterized by higher risks,” because the pool of underlying assets doesn’t belong to the issuer. They also stated that there is no guarantee of redemption at par by the issuer and the price of stablecoin isn’t really stable.
In a line with the traditional CBR message, the bank's rep noted that the ruble remains the only legal payment method in the country, and stated their belief in the digital ruble, “combining all the advantages of digital payments and the reliability of national currency.” As local industry experts sometimes emphasize, the central bank digital currency project lies at the heart of the CBR’s suspicion toward all the private cryptocurrencies.
On June 29, the head of the CBR’s department of financial technologies, Kirill Pronin, acknowledged the possibility of crypto mining legalization under certain conditions, namely the export of all the mined assets to foreign exchanges. The Ministry of Finance’s Ivan Chebeskov didn’t miss a chance to disagree, noting the current geopolitical challenges for Russian miners who want to sell their crypto abroad.
The first phase of experiments with a wholesale digital euro has been completed, and Phase 2 experiments will begin this year, Banque de France governor François Villeroy de Galhau said Tuesday. Four or five new experiments are expected to be launched.
Speaking at the Paris Europlace International Finance Forum, the French central banker summed up the European Union’s achievements in crypto-asset regulation under the French presidency, mentioning the Transfer Fund Regulation (Travel Rule) and Markets in Crypto-Assets (MiCA), specifically.
The Eurosystem is looking at the scope and design of a digital euro central bank digital currency (CBDC). The main rationale for a retail digital euro is to maintain the role of central bank money in the economy even as it is “threatened by the digital revolution,” Villeroy de Galhau continued. He spoke in favor of maximum intermediation in the design, noting that intermediaries have more experience than central banks with customer relations and Know Your Customer/Anti-Money Laundering (KYC/AML) measures. He said:
“I believe that the Eurosystem should not have the role of managing digital euro holdings: the Banque de France closed its last private customer accounts over 20 years ago, and does not intend to reopen any.”
A wholesale CBDC, to be used for interbank transfers and similar transactions, will be no less important than the retail, Villeroy de Galhau said. He cited the critical use cases of settlement of securities issued with digital ledger technology (DLT) and cross-border and cross-currency payments. The Banque de France designed a proprietary digital ledger technology, called DL3S, for a potential future system. It also produced an automated market maker platform based on a decentralized finance model, where settlements of multiple CBDCs could be carried out.
New experiments will involve testing a prototype digital euro with private actors and other central banks in preparation for the 2023 implementation of the pilot regime. Villeroy de Galhau stressed the importance of interoperability between DLT and the traditional system. DLT will complement rather than replace traditional infrastructure, he said.
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