ICTA and Central Bank thinking in bitcoin

By Himal Kotelawala

 The Information and Communication Technology Agency (ICTA) and the Central Bank are together looking at the possibility of introducing cryptocurrencies such as bitcoin to the country’s financial system, a top state ICT official revealed.

 Managing Director ICTA Muhunthan Canagey, addressing a forum of bankers facilitated by ISACA Sri Lanka on Tuesday said the Central Bank has responded positively to an idea put forward by his agency to introduce cryptocurrencies such as bitcoin as an encrypted, peer-to-peer digital currency to the financial system.  He noted, however, that this would require a clear strategy to liberate and enact new laws in order to introduce such technological breakthroughs to the country’s economic process.

  “We as a country need to start looking at this very seriously and for that we have to create an enabling environment to bring [cryptocurrencies] into the system.  ICTA will take this seriously, but as far as implementation is concerned, it is the markets that will take this forward,” he said.

 A cryptocurrency is a digital currency in which encryption techniques are used to regulate the generation of units of currency and verify the transfer of funds, operating independently of a central bank and bypassing the need for third party mediation. Bitcoin, the first and most widely use cryptocurrency, is a peer-to-peer digital asset and payment system that is completely open source. Transactions involving bitcoin are verified by individual computers on the network (known as nodes) and recorded in a public distributed ledger called the block chain that uses bitcoin as its unit of account. The system works without a central repository or single administrator, effectively making bitcoin a decentralised virtual currency.

 Regulators would need to think of adopting cryptocurrencies in a broader sense, or it might not happen, warned Canagey.  Foreign exchange rules will remain a major topic of discussion, he added.

 Executive Vice President and Group CIO at John Keells Holdings Ramesh Shanmuganathan who spoke on the Sri Lankan context with regard to crytpocurrency said that, as a predominantly cash based society, there is a lot of ground work that has yet to be initiated in order for the country to embrace a wholly new digital currency like bitcoin.

 In terms of ICT, he said, Sri Lanka is ranked 74 out of 193 on the United Nation’s E-Government Index. When it comes to financial inclusivity, 75% of local bank accounts are operated only once a month, with formal loans accounting for only 25% of the total on record.

 Sri Lanka is still largely a cash-based economy; vast majority of transactions carried out in cash, with significant enthusiasm for digital money, but little consistent understanding of demand, said Shanmuganathan.

 “While there is significant enthusiasm for digital money, there is little consistent understanding and demand. Institutional partners do not promote digital money and lack of information appears to prevent companies from working with each other,” he said.

 Digital Money ecosystem is fragmented and in flux, he said, adding that institutional partners do not promote digital money and a lack of information appears to prevent companies from working with each other. However, a digital money ecosystem is likely to continue to emerge organically with the economies of scale, and growing recognition that digital money will bring about greater financial inclusivity will be a key driver of adaption, he explained.

 The Central Bank, said Shanmuganathan, is seen to be supportive of development, and inclusive in its process, but it needs to have a clear strategy to liberate, deregulate and enact laws and acts to facilitate the likes of Paypal to operate in Sri Lanka.

 In this context, street-level adoption of cryptocurrencies such as bitcoin is at least five years away, estimated Shanmuganathan.