Bitcoin Adoption Rejected in Sri Lanka

On a recent trip to Sri Lanka, billionaire investor Tim Draper pitched the idea of adopting Bitcoin as a legal tender to fight corruption that contributed to the island nation’s hyperinflation. Taking time out of his TV shoot to meet President Ranil Wickremesinghe and Governor Nandalal Weerasinghe, Draper tried to convince them to do so.

Sri Lanka’s Economic Crisis

Sri Lanka is currently experiencing its worst economic crisis in seven decades, and it’s driving millions of people into poverty. In addition to widespread economic mismanagement and corruption, the country’s government is failing to implement necessary measures to help its citizens secure their rights to health, education, and an adequate standard of living.

The country is also in a deep financial crisis that has left millions of Sri Lankans with no options to buy food, medicine or fuel. Inflation has reached critical levels, and a quarter of the population is food insecure.

While in Sri Lanka for an episode of his “Meet the Drapers” television show, venture capitalist Tim Draper reportedly tried to persuade the government and central bank to adopt Bitcoin. He met with President Ranil Wickremesinghe on Tuesday and went to the central bank the next day with the same pitch, according to a Bloomberg report published on February 3.

Governor Nandalal Weerasinghe vehemently rejected Draper’s proposal, saying that Bitcoin adoption would not solve the country’s financial crisis. Weerasinghe explained that the country’s economy has collapsed and that it is currently seeking international assistance to deal with its debt problems.

Despite Weerasinghe’s rejection, Draper still wants to convince the country to accept Bitcoin. He told Bloomberg that he was inspired by El Salvador, which became the first country to accept Bitcoin as legal tender in September 2021, and that the crypto could be used to help solve the nation’s corruption problem.

But global economists are calling on private creditors to shoulder more of the burden when Sri Lanka seeks to restructure its debt. In a letter to the Sri Lankan government, a group of more than 200 leading economists said that if the country wants to avoid economic collapse, it will need debt restructuring to restore confidence with its creditors.

The letter called on international creditors to cancel the country’s debt in order for it to regain financial stability and resume growth, and also urged lenders to support Sri Lanka’s bid to receive a bailout from the International Monetary Fund (IMF). It added that Sri Lanka will have to implement strict reforms to qualify for the aid and that its private creditors must make substantial debt cancellations in return.

Draper’s Proposal

While in Sri Lanka to film an episode of his popular TV show, Meet the Drapers, billionaire investor Tim Draper sought to persuade the country’s president and central bank governor to adopt Bitcoin. He argued that the flagship crypto would help a debt-ridden, fuel and food-scarce country known for corruption to avert graft by keeping perfect records.

However, the governor responded to Draper’s proposal with a frosty reception. He rejected the idea, saying that a 100% adoption of Bitcoin would not be a reality in Sri Lanka and would not give the country monetary-policy independence. Instead, he cited other technologies that would efficiently distribute financial services and disburse electronic welfare payments.

Draper urged the governor to take a cue from El Salvador, which became the first nation to make Bitcoin a legal tender along with the US dollar in September 2021. The experience of the former Central American nation is a cautionary tale that should serve as a model for Sri Lanka.

In a 30-minute meeting, the two men discussed the merits of cryptocurrency as a solution to Sri Lanka’s economic crisis. During the conversation, Draper made several attempts to convince Weerasinghe of the effectiveness of digital assets, citing experiences like El Salvador’s.

The Sri Lankan government is currently facing a roiling economic crisis, with inflation at 54.2% and an 8% decline in the economy last year. The government is in talks with international creditors to secure a bailout, and it is seeking ways to calm the economy without exacerbating its problems.

During their conversation, Draper referred to the country’s reputation as a “corruption capital.” He said that cryptocurrency could help Colombo keep perfect records and prevent graft by not being subject to changing government policies. In addition, he cited a case from El Salvador where BTC was a crucial factor in staving off default at the last minute.

The Sri Lankan government has faced many financial challenges over the years, including a collapsed currency, hyperinflation, and mass protests. The government has been struggling to avert a default from the International Monetary Fund and has suffered fuel and food shortages that led to riots in 2017. It is also facing debt restructuring negotiations with its foreign creditors, and is trying to secure a loan from the World Bank to finance its budget deficits.

Governor Weerasinghe’s Response

Billionaire Bitcoin evangelist Tim Draper got a tougher response than he expected when promoting an anti-corruption pitch in Sri Lanka. He was in the country to shoot an episode of his Meet the Drapers TV show with local entrepreneurs, and met with President Ranil Wickremesinghe and Governor Nandalal Weerasinghe to recommend the use of cryptocurrencies. He also went to the central bank the next day with the same pitch.

The billionaire VC emphasized that the government could keep perfect records by adopting cryptocurrency, which is known to be an effective means of combating corruption. He cited the example of El Salvador, which became the first country to adopt bitcoin as legal tender in September 2021.

During their half-hour meeting, Draper continued to argue the importance of cryptocurrency for Sri Lanka’s economic crisis. He referred to the country’s reputation for corruption and highlighted that Sri Lanka had suffered from fuel and food shortages last year, which caused riots and led to a presidential resignation.

While the president and central bank governor were hesitant to embrace a cryptocurrency solution, they were supportive of other technologies that could effectively distribute financial services and disburse electronic welfare payments. They stated that a country without a currency would not be able to have monetary-policy independence and stressed that other technologies may be more appropriate for the country’s current situation.

At the end of their meeting, Weerasinghe responded to Draper’s proposal with a coldly worded rejection: “We don’t accept,” he said. The reaction is a harsher one than Draper has received in other locations where he’s been the founding resident of a digital-residency program.

According to Bloomberg, Draper wore a bitcoin tie to the meeting and was hosted in a teak-paneled room overlooking the ocean. He was joined by a member of the bank’s staff, who served him fizzy ginger beer.

After the 30-minute meeting, Draper was unable to convince Weerasinghe to accept crypto. Instead, he was told that Sri Lanka’s financial crisis had exacerbated other problems and that the adoption of cryptocurrency would worsen the situation.

Draper had a difficult time arguing with the Governor, whose government is struggling to calm down financial chaos. He also noted that the country’s inflation rate stands at 54.2% and its economy has contracted by 8% last year, making the proposal even less appealing.

Conclusions

The Sri Lankan government has rejected the proposal of billionaire entrepreneur and Bitcoin investor Tim Draper to adopt the cryptocurrency. The Silicon Valley venture capitalist visited the country earlier this week to film an episode of his “Meet the Drapers” television show with local entrepreneurs, and sought to persuade the president and the central bank to accept Bitcoin as a solution to corruption.

During the thirty-minute meeting, Draper argued that using a crypto currency would allow the government to keep a perfect record of all transactions and would ensure that no one could steal money or other valuables from the country. In addition, he claimed that the crypto would allow for an inflation hedge and a decentralized store of value.

However, the governor of the country’s central bank, Nandalal Weerasinghe, scoffed at the idea. He pointed out that Sri Lanka’s monetary policy independence requires the country to have its own currency and other technologies that can efficiently distribute financial services.

According to a report by Bloomberg, the billionaire VC met with President Ranil Wickremesinghe and Weerasinghe during his visit in an effort to promote Bitcoin adoption as a solution for corruption. He also sought to convince the central bank of its benefits, citing El Salvador’s September 2021 Bitcoin legal tender adoption.

He even pointed to the fact that the country was facing a major economic crisis, which caused fuel and food shortages and led to mass protests. The VC argued that by adopting Bitcoin, the country would be able to combat systemic corruption and keep a perfect record of all transactions.

Weerasinghe responded by saying that he believed that the introduction of a crypto currency would further aggravate the current economic crisis in the country. He explained that other technologies could help the government efficiently distribute financial services to foster inclusion and disburse electronic welfare payments, and said that having a national currency was essential for a country’s monetary-policy independence.

Despite these objections, Draper argues that he believes that a 100% Bitcoin adoption will never be possible in the country. He notes that the country’s economy is in a shambles and it faces a currency substitution risk as its fiat rupee has declined significantly against the US dollar.

The above references an opinion and is for information purposes only. It is not intended to be investment advice. Seek a duly licensed professional for investment advice.