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Tuesday June 25th, 2024

Sri Lanka cryptocurrency users should take own risk: CB officials

ECONOMYNEXT – Sri Lanka’s central bank has not yet approved cryptocurrencies for transactions and those who use them for transactions should bear the risks of any eventualities, officials said.

Sri Lanka’s cabinet of ministers appointed a committee to look into blockchain and cryptocurrency use in the country.

Blockchain is a tool to transact via electronic means, which can also be used for central bank money, but crypto currencies are electronic money with their own anchor.

Sri Lanka’s central bank has earlier cautioned the public on the use of crypto currencies.

The committee is mandated to study the regulations and initiatives of other countries such as Dubai, Malaysia, Philippines, European Union and Singapore and propose a suitable framework for Sri Lanka.

Legal Tender

However, the central bank governor said there is no policy change on Sri Lanka’s currency transaction method.

In Sri Lanka the central bank has a monopoly on money for transactions (legal tender) with limited use of US dollars for deposits, loans and transactions with foreign customers such as tourists.

“Our policy on cryptocurrency has not changed. Our stance is the same,” Cabraal told a press briefing last week.

“If somebody is doing some other transactions, they should take the risk of their action.

“This is not like a barter system. Sri Lanka’s currency unit is rupee. Only rupee is approved by the central bank as the transaction until. Nothing else has been approved.”

Crypto currencies such as Bitcoin and Ethereum are being traded widely in exchanges but their use for transactions, debt or deposits (denominational currency) is limited or non-existent.

Central banks have also started offer virtual currencies to make use of new clearing technologies such as blockchain and also to compete against the rapidly evolving cryptocurrencies.

Speculative Tool

New Bitcoins for example are ‘mined’ or created under a limited and apparently finite anchor denoted by its algorithm, which has made it extremely volatile and more of a speculative asset than a tool for transactions.

However they have attracted interest among speculators and young people as the US Federal Reserve and other central bank printed money and fired speculative bubbles.

“There is no specific law on cryptocurrency,” TMJYP Fernando, the centrak bank’s deputy governor told reporters.

“But we have informed the general public about the dangers of engaging in that currency. So, the people who have engaged in this will have to bear the risk of that.”

While Cryptocurrencies not come into general use yet, partly due to high transaction costs, they have been in use for some criminal activities due to their anonymity, just like central bank paper cash, which are used for illegal activities now rather than bank accounts.

There have also been concerns raised about cryptocurency exchange operators.

El Salvador recently made Bitcoin legal tender, raising concerns that a close relative of the President Nayid Bukele has been influenced by exchange operators who will dump bitcoins on the public and suck out dollars (The Bukele Clah that rules with Nayib)

https://elfaro.net/en/202006/el_salvador/24542/The-Bukele-Clan-that-Rules-with-Nayib.htm.

El Salvador is now fully dollarized after its central bank collapsed amid money printing and civil wars.

By 2004 its old Colon currency has effectively gone into dis-use. However cryptocurencies are still new and their creators while wanting set up rule-based rather than discretionary money may not have hit on the correct anchor that has the qualities of money.

However central banks that print money, lower living standards and create social unrest have block the evolution of new money as well as the adoption of existing stable money from better central banks through legal tender laws.

Sri Lanka’s Colombo Port City has freed its residents from existing de facto and de jure legal tender restrictions by being a dollarized area. (Colombo/Oct18/2021)

Comments (2)

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  1. dmbrom.com says:

    Thank you

  2. Nick says:

    If I were Sri Lankans, I would switch to anonymous systems like Utopia P2P https://u.is/. It is better to play it safe and use such systems to be completely safe.

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Your email address will not be published. Required fields are marked *

  1. dmbrom.com says:

    Thank you

  2. Nick says:

    If I were Sri Lankans, I would switch to anonymous systems like Utopia P2P https://u.is/. It is better to play it safe and use such systems to be completely safe.

Sri Lanka to sign Paris Club debt deals as fresh ISB talks to also start

ECONOMYNEXT – Sri Lanka will sign agreements on restructured debt with Paris Club creditors Wednesday, Cabinet spokesman Minister Bandula Gunawardana said as sources said talks with private creditors are also due to start later in the week.

The relevant senior officials and State Minister Shehan Semasinghe has already left the country to sign the agreements, Minister Gunawardana said.

Sri Lanka has held detailed negotiations with bilateral creditors ever since a sovereign default in 2022 and President Ranil Wickremesinghe has personally met leaders of friendly countries to expedite the restructuring, he said.

The finalizing of the restructure was a ‘great victory’ for Sri Lanka he said.

Details will be revealed to parliament by President Wickremesinghe and an address to the nation on Wednesday he said.

Discussion with private bondholders are also taking place separately, he said.

Face to face talks with bond holders are likely to start Thursday, sources said.

Investors in a steering committee representing key bondholders have halted trading and are in a ‘restricted’ period Bloomberg Newswires reported.

Sri Lanka is attempting to restructure 12.5 billion dollars of sovereign bonds and about 1.7 billion dollars of past due interest following the declaration of an external default in 2022.

Private investors are seeking some so-called macro-linked bonds whose final haircut is linked to dollar GDP as well as some standard or ‘plain vanilla’ bonds with an upfront haircut.

The style of bonds have not been used in sovereign restructurings before. In the latest round of talks more plain vanilla bonds may be discussed, sources aware of the thinking of some bond investors said.

The ISB holders have proposed a 28 percent haircut and a 1.8 percent consent fee. The macro-linked bonds would have principle re-stated up to 92 percent of the original depending on the evolution of gross domestic product.

Sri Lanka is restructuring debt using an IMF debt sustainability model applied to middle income countries with market access as opposed to debt sustainability model used in countries like Ghana applicable to low income countries requiring deeper haircuts on both domestic and foreign debt.

Hair cuts may also depend on the maturity of bonds and the coupon interest.

Ghana has higher levels of commercial debt having started to access capital markets from around 2007.

Ghana also has a bad central bank like Sri Lanka and has gone to the International Monetary Fund 18 times.

The country is also operating flexible inflation targeting (inflation targeting without a clean float), which critics say is the latest spurious monetary regime peddled to hapless unstable countries without a doctrinal foundation in sound money.

Having done broad domestic debt restructuring as well as continued currency volatility both interest rates and inflation remains above 20 percent.

Ghana’s central bank has a worse monetary anchor (8 percent inflation plus 2 percent) compared to 5 percent plus two in Sri Lanka and runs into currency trouble despite being an oil producer like Iran, Venezuela and neighboring Nigeria.

Nigeria has an inflation target of 6-9 percent but ends up with around 20 plus inflation and currency trouble.

Sri Lanka has undershot its inflation target since reaching monetary stability in September 2022 and has appreciated the currency, amid deflationary policy giving a strong foundation for economic activity to resume. (Colombo/June26/2024)

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Sri Lanka to seek investors for 200MW BOOT power plant

EONOMYNEXT – Sri Lanka’s cabinet has given approval to seek investors for a 200 MegaWatt independent power plant on a build-own-operate-and-transfer (BOOT) basis, a government statement said.

The internal combustion power plant will be capable of running on natural gas and is part of the Long-Term Generation Expansion of state-run Ceylon Electricity Board.

The investor will get as 20-year power purchase agreement.

Land next to the ‘Sobhadanavi’ combined cycle plant will be made available for the developer.

According to the generation plan, the 200MW IC plant is expected to come on stream by 2026.

In 2026, a 115 MW gas turbine, a CEB owned diesel plants of 68 MW and 72 MW are due to be retired. (Colombo/June25/2026)

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Sri Lanka rupee closes steady at 305.25/35 to US dollar

ECONOMYNEXT – Sri Lanka’s rupee closed fairly flat at 305.25/35 to the US dollar on Tuesday, down from 305.20/30 to the US dollar on Monday, dealers said, while bond yields up.

A bond maturing on 01.06.2026 closed at 10.75/11.05 percent.

A bond maturing on 15.12.2026 closed at 10.65/11.05 percent, up from 10.45/85 percent.

A bond maturing on 15.10.2027 closed at 10.65/11.10 percent.

A bond maturing on 15.03.2028 closed at 11.20/11.50 percent.

A bond maturing on 15.09.2029 closed at 12.10/15 percent, up from 12.05/17 percent.

A bond maturing on 01.12.2031 closed at 12.10/20 percent, up from 12.08/15 percent.
(Colombo/Jun25/2024)

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