CB warns users to bear the risks when dealing in cryptocurrencies

CB warns users to bear the risks when dealing in cryptocurrencies

22 October 2021 07:15 pm

Setting the record straight on the rising use of virtual currencies, which are also known as cryptocurrencies, the Central Bank said that the users ought to assume the risks associated in dealing with such currencies, as there is neither regulatory oversight nor any legal recourse should they fall victim by engaging with such currencies.

 The Cabinet of Ministers has given the nod to appoint a committee of skilled professionals in the public and private sectors to report on the Acts, Rules and Regulations required to attract investments of the companies involved in digital banking, blockchain technology and cryptocurrency mining.

According to the Government Information Department, the Project Coordinating and Monitoring Minister had submitted the relevant proposal to the most recent Cabinet meeting.

However in order to make the public aware of the risks, the Central Bank in April issued a press communiqué listing down the significant and multiple risks associated with dealing in cryptocurrencies such as Bitcoin, Ethereum and Litecoin.

As of late, some local merchants however announced either they had already started accepting or they were planning to accept cryptocurrency for their transactions, which has led the public to believe that cryptocurrency has the legal backing in Sri Lanka. 

This newly appointed  committee will be tasked with approving cryptocurrency mining companies to invest in Sri Lanka and allowing the Board of Investment (BOI) to take necessary steps under the provisions of the BOI Act No. 4 of 1978 and the related amendments.

The government says it has identified the necessity of developing an integrated system that amalgamates digital banking, blockchain technology and cryptocurrency mining and other essential services in order to facilitate the creation of a digital business environment.

But the Central Bank noted that it’s  policy on cryptocurrency hasn’t changed and if certain sections conduct their businesses via cryptocurrency, they must also take the risks associated with it,” said Central Bank Governor Ajith Nivard Cabraal. 

 In April, the Central Bank warned of the possibility of incurring heavy losses by holding such currencies, as their values are so dependent on speculation and aren’t generally backed by underlying assets.

The Monetary Authority also cited that such virtual currencies have a high likelihood of being associated with terrorist financing activities and also could violate the foreign exchange regulations of the country.

 Central Bank Deputy Governor Yvette Fernando said while they have been informed of some cases of cryptocurrency usage, there aren’t specific laws governing the usage of cryptocurrency at present. 

“But we have informed the public about the dangers of using that kind of currency. People who engage in these will have to bear the risk of that,” she added.

After receiving the Cabinet nod early this month, a committee was set up comprising of professionals from both the public and private sectors to study and draft a report outlining the modalities, including the legal framework, to attract investments from companies engaging in cryptocurrency.

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