Key Takeaways:
- Sri Lanka defaults on its foreign debt, as the Ministry of Finance announced on Apr. 12
- However, experts see a silver lining after all, as the government appoints a new Central Bank governor
- Crypto investors claim Bitcoin is the answer
YEREVAN (CoinChapter.com) – The Republic of Sri Lanka halted payments on foreign debt and defaulted, a “necessary” step taken to preserve its dwindling dollar reserves for essential food and fuel imports. The political and economic instability also resulted in the mass resignation of the 26-member cabinet.
Sri Lanka in crisis
Additionally, the Ministry of Finance issued a statement on Apr. 12, declaring all outstanding payments to bondholders, bilateral creditors, and institutional lenders were suspended until a debt restructure.
Sri Lanka has had an unblemished record of external debt service since independence in 1948. Recent events, however, including the effects of the Covid-19 pandemic and the fallout from the hostilities in Ukraine, have so eroded Sri Lanka’s fiscal position that continued normal servicing of external public debt obligations has become impossible.
read the statement.
Renowned economist Ganeshan Wignaraja agreed with the statement. The expert told the ABC podcast that the listed-above macroeconomic factors affected Sri Lanka, along with “policy missteps,” which resulted in a “toxic mix” of a recipe for disaster.
However, Wignaraja added that “it’s not all completely bleak,” citing the appointment of Nandalal Weerasinghe as the new Central Bank governor and his actions to raise policy rates by 700 basic points, which would “slow the economy and stabilize the currency.”
Also read: Trade volumes on Indian exchanges fall as new crypto tax law comes into force.
Meanwhile, some crypto investors on Twitter claimed that Bitcoin is the answer to the “car wreck” fiat economy.
Bitcoin to the rescue?
Countries like Lebanon, Peru, and Sri Lanka are under pressure from economic turmoil and anti-government riots. But the swarm of crypto enthusiasts suggested they should follow El Salvador’s example and accept Bitcoin as legal tender. They further claimed that doing so would “fix” the fiat economy “car crash,” democratizing money.
Also read: EU hits Russia crypto wallets in another round of sanctions.
Moreover, Michael Van de Poppe, the CEO of consulting firm Eight Global, joined the cause, calling for crypto adoption. The expert asserted that Sri Lanka should follow the examples of Canada, Ukraine, and other countries that took steps to broaden their crypto exposure.
Also read: Bitcoin bonds: El Salvador plans 20 bills to provide a legal framework.
Sri Lankan government officials have not yet commented on any crypto involvement or plans of such. However, the former central bank governor Ajith Nivard Cabraal’s position on the matter was clear.
Our policy on cryptocurrency has not changed. Our stance is the same. 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.
he said back in October, 2021.
Sri Lankan investors traded cryptos on exchanges. But their use for transactions, debt, or deposits was limited or non-existent.
