Is Crypto A Wise Choice For Sri Lankans Amid Economic Catastrophe?

  • August 4, 2022
  • Jennifer Moore

There has been a long debate among crypto leaders, that the socio-economic instability of Sri Lanka will work in favor of crypto adoption in the country. With the current political unrest in Sri Lanka, the country has issued warnings against the use of cryptocurrency claiming it is “mostly uncontrolled”.

Central Bank of Sri Lanka Warns Public Against Use of Cryptocurrency

The central bank of Sri Lanka, CBSL, asked the people of the country not to take cryptocurrency as a legal tender in the country, and that there has been no license granted to the use of digital assets by authorities. “According to the Department of Foreign Exchange of CBSL, the Foreign Exchange Act Directions No. 03 of 2021, and Directions No. 12 of 2017, suggest EFTCs (Electronic Fund Transfer Cards), like credit cards and debit cards, are not allowed to be used for digital asset transactions”, CBSL posted the statement on their website.

Also Read: Hong Kong Tops As The Most Ready Crypto Country in 2022

Sri Lanka at Risk of Economic Recession

The value of the Sri Lankan rupee has plummeted by 44% against the US dollar. The currency is undergoing an economic recession and is also at risk of currency substitution. The political leaders of the country are striving to unearth a constructive solution to secure itself from the International Monetary Fund. However, it is a prolonged, and time-consuming procedure. The situation has led many crypto investors and enthusiasts believe, to establish favorable weather for crypto adoption by Sri Lankans.

The vice president of research and analysis of EarthID a worldwide blockchain company, suggests that crypto adoption has been higher in countries with uncertain economic conditions. Similar to Ukraine, crypto might help the Sri Lankans to use it as a financial solution. Low transaction costs and real-time payments make a promising case for economic relief using crypto.

Also Read: Singapore issues Data Protection Guidelines for Blockchain Networks

Is Sri Lanka Lagging Behind in Adopting Cryptocurrencies?

Sri Lanka-based crypto experts suggest that after the pandemic, the Sri Lankan rupee had undergone immediate devaluation and is now trembled by the existing political upheaval. Therefore, while looking for alternative investments, crypto has become a popular choice among the public.

A Sri-Lanka-based cryptocurrency and blockchain strategist, Sanjay Mendis says that the global crypto market is covered by Gen Z, the ones who are tech-savvy and do not trust conventional investment systems. One leading P2P trading platform, PaxFul listed a 730% growth between 2020 to 2021 from Sri Lanka.

In 2021, a government panel in Sri Lanka recommended a regulatory framework that covered the expansion of digital banking, cryptocurrency mining, and blockchain technology. Sri Lanka must work on integrated online banking, and cryptocurrency mining to keep up with the world, and expand international trade, said Sri Lankan government.

A blockchain analysis firm, Chainanalysis 2021 recognized Southeast and Central Asia as one of the world’s top provinces to adopt digital assets. Sri Lanka has lagged behind other Asian countries in accepting cryptocurrencies.  The country has one company that accepts digital currency and did not make the list in the global cryptocurrency adoption index of 2021.

At present, the country has more than 320,000 crypto owners, and the number is only going to increase in the present situation. Many companies are offering crypto as an alternate investment option. Moreover, various international schools are adding crypto as a curriculum.

 In Conclusion

Wrapping up, the question that lingers is, will crypto act as a “Hedge Against Inflation” in the present economic scenario?

The crucial impact of the economic crisis in most countries results in the fall of currency value against the USD. However, due to poor fiscal policies, USD is also falling out of favor.  Lately, India obtained oil from Russia and paid INR, which automatically raises questions about the fate of the USD.  

Although the crypto market is not doing well for the past few months, it is yet to create an impact on the global financial market. According to the International monetary fund, the supply-demand imbalance, and rising food and energy prices, is partly the outcome of the Ukraine conflict which at present is charging inflation worldwide.

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