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Sri Lanka Central Bank cautions on Virtual Currencies

Central Bank said while the Bank is aware of the growing interest in virtual currencies both domestically and internationally, virtual currencies are not central bank issued currency and the Bank has not authorized the use of cryptocurrencies.

The term “virtual currencies” is commonly used to refer to digitally created representations of value that are issued by private developers and denominated in their own unit of account. Common examples of virtual currencies are cryptocurrencies such as Bitcoin, Litecoin and Ethereum.

The Central Bank in a statement explained that virtual currencies such as cryptocurrencies use decentralized peer-to-peer digital networks to authorize transactions.

“Due to the absence of a centralized authority such as a Central Bank to guarantee the value of the currency and regulate transactions, there is no recourse in the event of any user or transaction related issues or disputes. The value of virtual currencies is dependent on speculation and is not backed by an underlying asset or a regulatory framework. Due to this, virtual currencies may demonstrate major volatility,” it said.

The Central Bank further noted that there appears to be a high probability of virtual currencies being used in illegal activities. Further, though unintentional, their usage could amount to breaches of anti-money laundering and combating the financing of terrorism (AML/CFT) laws.

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