Ten regional and international commercial banks such as Commercial Bank of Ceylon, Cargills Bank, Amana Bank, DFCC Bank, Standard Chartered Bank, Hatton National Bank, etc., have successfully tested the KYC POC. “Farmers represent a third of the workforce and account for almost 20 percent of the economy, yet very few have insurance. This made Sri Lanka a perfect candidate to feel the benefits of decentralized, collaborative and automated insurance. This alliance is really a cooperation between all and showcases blockchain for social good”.
Common examples of virtual currencies are cryptocurrencies such as Bitcoin, Litecoin and Ethereum. CBSL strongly advises the public to safeguard their hard-earned money and not to invest or engage in any cryptocurrency scheme offered through the Internet, other forms of media, or directly by any persons. This chapter introduces the ‘5P methodology’ designed to guide central banks in exploring and developing CBDC, from research to potential launch. The methodology draws from experiences in various jurisdictions and incorporates best practices from different industries, and is intended to facilitate experimentation and support progressive decision-making while effectively managing risks.
Committee members tasked the central bank to conduct a comparative analysis of payment systems employed by India and Bangladesh and make a report within 14 days. The project was under the Vistas of Prosperity and Splendor, an initiative of the Sri Lanka government. There has been increased interest in digital currency and hence the government’s new exploration into KYC technology in Sri Lanka. The CBSL, being aware of the growing interest both nationally and internationally in cryptocurrencies such as Bitcoin, Ethereum and Litecoin, has decided to implement the development of a blockchain-based Know Your Customer (KYC) platform.
CB digital currencies can improve payment systems as well as financial inclusion—if they are appropriately designed. A recent press report in Sri Lanka claimed the central bank plans to introduce a central bank digital currency (CBDC) this year. However, while the central bank hopes to start exploring a CBDC, we do not believe a specific date was provided. In recent years, the Central Bank of Sri Lanka (CBSL) has warned citizens about digital currency transactions. The central bank of Sri Lanka believes that virtual currencies such as digital currencies are dependent on speculation, which makes them highly volatile and exposes the investors to the risk of losing large amounts of money. On January 10, the Governor of the Bank of Sri Lanka, Dr. P. Nandalal Weerasinghe, gave a speech outlining financial sector policies for 2024 and beyond.
The public is therefore warned of the possible exposure to significant financial, operational, legal and security related risks as well as customer protection concerns posed to the users by investments in VCs. The public is also warned not to fall prey to various types of VC schemes offered through the Internet as well as other forms of media. If CBDC were susceptible to cyber risks, it could undermine consumer confidence and trust in the financial system. The intricately interconnected CBDC ecosystem—comprising central banks, commercial banks, payment service providers, and technology vendors—faces an array of cybersecurity challenges, exacerbated by human vulnerabilities and the use of novel technologies untested at scale.
The value of virtual currencies is dependent on speculation and is not backed by an underlying asset or a regulatory framework. Similarly, 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. Therefore, cryptocurrencies, in the present form, may pose significant risks in terms of financial, operational, legal, customer protection and security related risks to their users as well as to the economy. Do central banks need a CBDC when already equipped with other well-established digital payments systems?
