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Sri Lanka central bank warns against use of cryptocurrency amid economic crisis

Sri Lanka has warned its citizens against using cryptocurrency, which it said is “largely unregulated” amid an ongoing political chaos in the South Asian nation.

The country’s central bank, CBSL, said Tuesday it does not consider cryptocurrencies as legal tender in the country and reminded that it has not given license or other authorization to any entity to operate in the nation.

Citing its previous warnings released in 2018 and 2021, the central bank said it had also not authorized any initial coin offerings (ICO) or mining operations and virtual currency exchanges in the nation. Virtual currencies are considered as “unregulated financial instruments and have no regulatory oversight or safeguards relating to their usage” in the country.

“As per the Directions No. 03 of 2021 under Foreign Exchange Act, No. 12 of 2017 issued by the Department of Foreign Exchange of CBSL, Electronic Fund Transfer Cards (EFTCs) such as debit cards and credit cards are not permitted to be used for payments related to virtual currency transactions,” the bank said in the statement posted on its site.

The warning comes at a time when the sovereign-debt crisis has crippled the local economy. The South Asian nation, which fell into default in May this year and is struggling to secure essential imports from other nations, reported that inflation had touched a year-on-year record of 54.6 percent in June (PDF).

The total market value of final goods and services, which is measured through the gross domestic product (GDP) standard, also contracted 1.6 percent in the first quarter of 2022.

The falling value of local currency has prompted many Sri Lankans to invest in other assets and cryptocurrencies.

Major cryptocurrencies are not having a great time, either. In a matter of months, the $2 trillion crypto market has dropped over 56 percent to $873.03 billion in value. Their reversal in gains coincides with a similar decline in public stock markets and private market dealflow activities.

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