Sri Lanka’s banking regulator has announced plans to explore a central bank digital currency (CBDC) to improve the country’s financial inclusion and complement cash use.
Plans for a CBDC launch are underway, with leading central bank executives eyeing the end of 2024 as a tentative launch date. The executives appear before the Ways and Means Committee in Parliament, responding to lawmakers’ inquiries related to a CBDC.
Committee Chairman Patali Champika Ranawaka pointed out the absence of a proper structure for online payments in the country, seemingly indicating support for pursuing a retail CBDC. Given the lack of tighter regulations in Sri Lanka’s financial ecosystem, resulting in 45% of all transactions being unregulated.
Central bank officials noted that exploring a retail CBDC is a veritable solution to bring financial transactions within the purview of authorities. The central bank will begin a proof-of-concept (PoC), augmented by a public consultation, before proceeding with a phased pilot to test real-world scenarios.
Sri Lankan lawmakers doubted the timeline for the CBDC plans over fears of a potential disruption to the financial ecosystem. Members of parliament are pushing for a cautious approach toward rollout despite the lack of regulatory control and supervision over a chunk of the financial system.
Alongside plans for a CBDC launch is the proposed launch for Lanka Pay, a national payment network to support real-time interbank transfers. During the meeting with the MPs, the central bank executives mulled over the prospects of integrating a QR code system into the financial ecosystem.
To bring the financial system under control, initial plans will see the migration of payment systems used by the Inland Revenue Department and Customs to blockchain-based platforms.
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.
IMF may play a bigger role
There are suggestions that Sri Lanka’s CBDC plans may rely on the technical and policy
direction of the International Monetary Fund (IMF). IMF officials visited Sri Lanka in mid-January to assess the economic reform program implemented by Sri Lankan authorities after a financial crisis in 2022.
The IMF has since released a CBDC handbook to guide nations looking to begin their CBDC experiments.
“The handbook will be a compendium of knowledge and experience on CBDC,” said an IMF official. “It will be the basis for capacity development and hopefully help countries make as well-informed decisions as possible when taking the major step to design and issue their own CBDC.”
To learn more about central bank digital currencies and some of the design decisions that need to be considered when creating and launching it, read nChain’s CBDC playbook.
Watch: Finding ways to use CBDC outside of digital currencies
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