Government advances digital transformation towards a cashless economy
The Sri Lankan government is investing US$10 million (Rs.3 billion) for digital transformation efforts in 2025 with a vision to generate $15 billion from the digital economy in the next five years.
A significant one of these features is bringing into being a unique digital ID and new juridical rules for the organisation of digital services, following the establishment of a Digital Economic Authority (DEA).
A high-ranking government official in the Finance Ministry reaffirmed that the government stands firm in augmenting regulation, encouraging technological innovation, and financial inclusion with an eye towards promoting economic growth.
The proposed DEA will oversee and regulate the rapidly expanding digital economy to establish a safe and effective digital payment system.
Transition to a cashless economy is the top item on the agenda, with focus on channeling investments into new sectors such as artificial intelligence, robotics, and financial technology.
Maintaining the balance between innovation and strong regulation checks is the need of the hour in this rapidly changing financial environment. While fintech revolutionises financial services, policymakers must keep the momentum for growth and risk aversion in balance.
The Rise of Fin tech and Its Impact
A former finance ministry secretary points out the evolving regulatory environment that strives to encourage technological change but assure stability and ensure consumer protection.
Greater competition by fin tech players has transformed financial services in spectacular fashion, with speed, efficiency, and accessibility—features largely preferred by the young generation.
Fintech companies are present in a number of areas, and whereas some enhance greater access to conventional financial products and services, others are pioneers in offering completely new tech-based products.
However, in Sri Lanka, such non-bank fintech companies that provide nothing remotely resembling a conventional bank product or service are exempted from the oversight of the Central Bank (CB). Either such organisations lack any regulatory framework allocated to them, or they have other regulation-based classifications.
Whereas fintech may help in financial inclusion, it also creates threats of increased financial instability, cyber security risks, market volatility, and potential contagion effects on consumers and financial institutions. The rapid expansion of fintech in high-risk business activities requires proactive regulatory measures to ensure financial security.
Regulatory Challenges and Concerns
Fintech activities without any regulation can further destabiliae money markets of conventional money, causing unfair competition against licenced finance institutions and banks that now hold control over two-thirds of Sri Lanka’s financial assets under strict regulation by the CB.
Foreign exchange transactions have been a cause for concern as unregulated fin tech platforms can lead to untraceable cross-border flows.
Ex-Minister Patali Champika Ranawaka warned that underground financial systems such as Undiyal, Hawala, and crypto currency transactions will become powerful if they are not regulated.
He referred to the point that unless it is regulated, such funds will bypass the official tax structure using peer-to-peer (P2P) and it will not be easy to track and administer such a scheme by the Inland Revenue Department.
Future of Crypto currency in Sri Lanka
Crypto currency is a subject of international debate, and Sri Lanka is witnessing increased interest in digital money like Bitcoin.
There have been proposals to establish a crypto agency in the Port City of Colombo, but without a well-defined regulatory framework, mismanagement could lead to enormous financial risks, as has happened with the casino industry.
Many Sri Lankans are already engaged in crypto currency trading and Bitcoin mining, earning income in the sector.
However Bitcoin mining is an energy-intensive process, and it will be a colossal task for Sri Lanka as it does not have the infrastructure to facilitate the same.
Even the US is giving an outline for increasing production by 40 per cent in the next decade to meet the needs of the industry.
In the future, Sri Lanka must develop an overall strategy to govern crypto currency, considering matters pertaining to energy consumption, infrastructure development, and financial control.
Merely acknowledging the advent of the crypto industry is not enough—well-established policies and appropriate regulations will be necessary to ensure that digital financial developments are advantageous to the economic change of the nation.
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