Technology is gradually silencing people who are decrying the unwarranted delays when dealing with commercial banks and primary dealers in various legal and monetary transactions. Thanks to various system applications, such as the Blockchain Technology, that seems to be the way forward for many countries. Even the Central Bank of Sri Lanka (CBSL) is currently holding discussions on using innovative Financial technology (Fintech)such as the Blockchain.
In simple terms, Blockchain experts say that this technology, is immutable once the transaction is stored, because it cannot be changed and if someone is trying to change it, will alert the other parties in the network. Also, the need for a huge server to store data on the Blockchain does not arise. Hence, it is cost-effective.
Despite the United States of America legalizing Crypto Currency (Virtual currency), not as currency, but as a commodity, which is like gold or silver and is currently trading in the futures market, the CBSL, on 16 April, 2018 said the usage of crypto currency or Virtual Currency (VC) could amount to breaches of anti-money laundering and combating the financing of terrorism (AML/CFT) laws.
The CBSL’s Department of Payment and Settlements notified the public that the Virtual Currencies (VC) such as Crypto Currency are not Central Bank issued currency and uses decentralized peer-to-peer digital networks to authorize transactions. Hence the CBSL has not given licences or authorization to any entity or company to operate schemes involving them and has not authorized any Initial Coin Offerings (ICOs).
“The VC may demonstrate major volatility and the virtual currencies are becoming more widespread. The Central Bank raised public awareness regarding the risks involved in using Crypto Currency and notified the public. Since the virtual currencies are constantly changing in value and use, the CBSL is observing the local and global environment and will inform the public of any important developments, if needed,” the CBSL stated.
CBSL on Blockchain
However, the CBSL, knowing the difference between Crypto Currency and Blockchain Technology, has been holding various meetings and conducting research on digital innovations to be used for various economic activities.
“The Central Bank has been fostering industry collaboration to encourage digital innovations in financial services,” noted K. Ambagahawita, Director of the Payments and Settlements Department.
He added that the Sri Lanka’s digital payment innovation policies are spearheaded by the National Payment Council (NPC), which is an industry collaborative council comprising stakeholders of all sectors connected to financial services and that the NPC had appointed two subcommittees in 2017– the FinTech (Financial Technology) subcommittee and the Blockchain Subcommittee.
The Financial Technology (FinTech) is described as an emerging financial services sector in the 21st century. Originally, the term applied to technology applied to the back-end of established consumer and trade financial institutions.
When asked about the developments regarding the use of blockchain in Sri Lanka, Ambagahawita responded that the CBSL, through the NPC, set up a Blockchain Working Committee to study the possible uses of this technology to improve various economic activities.
“As a recommendation of the Blockchain committee, a Blockchain working committee has been established to present a blockchain strategy for Sri Lanka for selected areas of the economy. The Blockchain committee is also an inter-industry committee which includes several Sri Lankan companies that are already developing blockchain solutions at an international level. It is expected that this collaborative effort will reap positive and tangible results that will increase the speed, efficiency and security of digital transactions.”
When asked to explain the CBSL’s recent advertising about the creation of a Sri Lankan FinTech Regulatory Sandbox and to elaborate on its purpose, he noted that the CBSL is supportive of FinTech innovations and is also cognizant of the regulatory shortfalls they could have as they venture into new areas.
Therefore, CBSL has initiated the process to set up a FinTech Regulatory Sandbox for Sri Lanka so that we can provide FinTechs with the necessary regulatory guidance when developing their products in a safe and secure environment. “The Regulatory Sandbox provides a controlled environment that promotes the advancement of FinTechs whilst maintaining appropriate regulatory standards. Regulatory Sandboxes have been set up across the world, including several Asian countries. To ensure that the Regulatory Sandbox is beneficial to Sri Lankan FinTech innovators and start-ups, we have adopted a participatory approach to determine the scope of the Sandbox to identify market requirements. We have invited all stakeholders involved to share their experiences relating to launching and operating FinTech, including the issues they faced and the opportunities they had. These responses will be considered when determining the scope to ensure it is well targeted.”
“The Central Bank of Sri Lanka is keen to ensure that Sri Lankan FinTechs are sustainable in every aspect including regulatory standards. This is the reason that we have taken an open and collaborative approach for all FinTech related aspects. We expect that the industry will make good use of these opportunities and the healthy collaborative environment that has been created for FinTechs and new technologies such as blockchain to grow.”
No Middlemen when using Blockchain
Blockchain Lanka (Private) Limited Managing Director Fazlul Rahman, whose company is developing solutions on Blockchain Technology for overseas clients, tells Ceylon Today that Blockchain is a Technology on which enterprise applications can be built on, however, he said some sectors will be ‘disrupted’ due to Blockchain.
“As per statistics, Blockchain applications will reduce the cost of overseas remittance in a big way and in future, I believe, there will be no charge for remittance. Also, the time to do the transaction will be fast and will cut the middle person which are the banks.”
If we look at the Central Bank (CB) they will actually get a better grip, because they simply need to have a copy of the transactions in their server, so in theory each bank will replicate its data base to Central Bank and then CB can monitor it easily.
“This is unlike current data bases, which are central, where you only need to hack the central data base. That occurred at the Bangladesh Central Bank. In Blockchain, you need to hack all the computers in the network. Also, in the event the data is lost it can replicate the ledger from another computer since each keeps a copy of the latest transaction. Blockchain uses cryptography which also makes the systems secure. The Bitcoin Blockchain is open source and currently is estimated at 159 Billion USD, yet it has not been hacked, this is due to fact that it is decentralized and uses cryptography,” Rahman, who is a qualified IT system analyst, said.
In essence, Blockchain means transactions are recorded and stored in blocks and is chained, which means the transaction blocks are linked. Also, Blockchain is a decentralized Ledger or data base which replicates the same transaction in the network that the ledger is kept. This can be private or public.
Blockchain does not need the Central Bank’s approval because Blockchain is a Technology similar to other Technologies that are available in the market, that is out their, which does not require the Central Bank’s approval.
Blockchain can be used on top of any application, you only need to open the Application Programming Interface and the Blockchain applications can pull the data.
If we look at today’s context the Central Bank does not have a clue of the money circulation in Sri Lanka. Take for example the demonetization in India, they expected some value by recalling 500 notes, the figure they got was different and less than anticipated.
(Source: Ceylon Today – By Sulochana Ramiah Mohan)