In a bid to enhance financial inclusion and supplement cash transactions, Sri Lanka’s banking regulator has revealed intentions to delve into the realm of Central Bank Digital Currency (CBDC). Plans for the CBDC rollout are in motion, with key central bank executives setting their sights on the close of 2024 as a tentative launch date. These executives recently appeared before the Ways and Means Committee in Parliament, providing insights in response to lawmakers’ inquiries regarding the CBDC initiative.
Committee Chairman Patali Champika Ranawaka highlighted the deficiency in a structured online payment system within the country, hinting at potential support for the development of a retail CBDC. This sentiment is reinforced by the absence of stringent regulations in Sri Lanka’s financial landscape, leading to 45% of all transactions operating without oversight.
Central bank officials emphasized that exploring a retail CBDC presents a viable solution to bring financial transactions under regulatory purview. The central bank is set to commence a proof-of-concept (PoC), coupled with a public consultation, preceding a phased pilot to assess real-world scenarios.
Despite concerns from Sri Lankan lawmakers about the proposed CBDC’s potential impact on the financial ecosystem, Committee members advocate for a cautious approach to the rollout. This caution stems from the current lack of regulatory control and supervision over a significant portion of the financial system.
Concurrently, alongside the CBDC plans, the central bank is contemplating the launch of Lanka Pay, a national payment network designed to facilitate real-time interbank transfers. During discussions with members of parliament, central bank executives explored the possibility of integrating a QR code system into the financial ecosystem.
To assert control over the financial system, initial plans involve migrating payment systems utilized by the Inland Revenue Department and Customs to blockchain-based platforms. Committee members have tasked the central bank with conducting a comparative analysis of payment systems employed by India and Bangladesh, with a report due within 14 days.
IMF’s Potential Role
There are indications that Sri Lanka’s CBDC aspirations may hinge on the technical and policy guidance provided by the International Monetary Fund (IMF). Following an IMF visit to Sri Lanka in mid-January to assess economic reforms post a 2022 financial crisis, there is a suggestion that the IMF’s recently released CBDC handbook could play a pivotal role.
“The handbook will serve as a compendium of knowledge and experience on CBDC,” stated an IMF official. “It will be the foundation for capacity development and hopefully assist countries in making well-informed decisions when venturing into the significant step of designing and issuing their own CBDC.”
