The Need for a Regulatory Framework to govern Digital Currencies in Sri Lanka

Cryptocurrencies are digital currencies that allow people to pay each other directly through an online system, as well as serve as a form of investment for many people. These currencies have no intrinsic or legislated value; they are simply worth the amount people are willing to pay for them in the market. There are many different types of cryptocurrencies, the most well-known of which are Bitcoin and Ethereum. Many countries around the world have ways to regulate them in order to get a hold on their activity and for the risks, it poses as much as the advantages they carry. As of yet, Sri Lankan law does not provide any framework for regulating the cryptocurrency investment industry, even though warnings have come forward from the Central Bank of Sri Lanka. Although cryptocurrencies may be the future of the global financial sector, they could also be used by scammers, speculators, and even criminal organisations and industries to do illegal acts such as Money laundering and Financing terrorism. Sri Lanka needs a regulatory framework as soon as possible since the value of cryptocurrencies is going up every day, even though such rapid growth will lead to volatility. Therefore this study looked into the concept of digital currencies, their usage, and the risks, as well as compared the regulatory framework of Sri Lanka with several other countries such as the USA and India. Research questions focus on how the lack of regulation of digital currencies in Sri Lanka could hurt the country. Further, the research takes a positivist epistemological approach using qualitative doctrinal methodology by critically evaluating primary and secondary sources. The goal is to determine which exception provides the most clarity and justice. A comparative analysis is done with USA and India to get a clear understanding of the recommendations needed by Sri Lanka to build a regulating framework in the country. With the results obtained through literature analysis in this thesis it suggests that even though cryptocurrencies are not openly used in Sri Lanka, there is a huge market which goes unnoticed and thus unregulated. Hence It is recommended that these lacunas be remedied.