The Digital Rupee: Should Sri Lanka Build a CBDC?

The CBDC Question

Central Bank Digital Currencies — digital versions of national currencies issued directly by central banks — are being explored by over 100 countries. India is piloting the digital rupee. China's e-CNY is already in use. The European Central Bank is developing the digital euro. It is inevitable that Sri Lanka's CBSL will study this concept. But should they actually build one?

I have mixed feelings, and I think the Sri Lankan crypto community needs to think carefully about CBDCs rather than reflexively opposing or supporting them.

What a Digital Rupee Would Be

A CBDC is not cryptocurrency. Let me be very clear about this, because the confusion is widespread. A digital rupee would be:

• Centralized: Controlled entirely by the CBSL, unlike Bitcoin which is decentralized
• Inflationary: The CBSL could create more digital rupees at will, just like physical rupees
• Surveilled: Every transaction visible to the central bank, unlike cash
• Programmable: The government could potentially impose conditions on how money is spent

Potential Benefits for Sri Lanka

Financial Inclusion

A significant portion of Sri Lanka's population is unbanked or underbanked. A digital rupee accessible via basic smartphones could bring these people into the formal financial system without requiring a traditional bank account. This is the strongest argument for a Sri Lankan CBDC.

Reduced Cash Handling Costs

Printing, distributing, and managing physical currency costs the CBSL and commercial banks significant money. A digital rupee could reduce these costs. For a country under fiscal pressure, this matters.

Faster Government Payments

Samurdhi payments, pensions, public sector salaries — these could all be distributed instantly via digital rupee rather than through slow bank transfers or physical cash distribution. During the 2022 crisis, the inability to distribute emergency payments quickly was a real problem.

Better Monetary Policy Transmission

A digital rupee could give the CBSL more direct tools for implementing monetary policy — though this is also one of the biggest concerns.

My Concerns

Surveillance

This is my biggest concern. A CBDC gives the government perfect visibility into every financial transaction. For a country that has experienced authoritarian tendencies — the Rajapaksa era being the most recent example — this is deeply troubling. A government with total financial surveillance can:

• Track political donations and punish opposition supporters
• Freeze the assets of journalists, activists, or dissidents
• Monitor every purchase, every transfer, every financial relationship

Sri Lanka does not have the institutional safeguards to prevent abuse of this power. Until we have genuinely independent institutions and robust privacy laws, a CBDC is a surveillance tool waiting to be weaponized.

Programmable Money

CBDCs can be "programmable" — meaning the government can impose conditions on how money is used. This sounds neutral until you consider the implications: money that expires if not spent by a certain date (forcing spending), money that can only be used at approved merchants, or money that cannot be used for certain purchases. This is not hypothetical — China's e-CNY already has some of these features.

Disintermediation of Banks

If people can hold digital rupees directly with the CBSL, why would they keep money in commercial banks? A mass migration from bank deposits to CBDC could destabilize the banking system — exactly what Sri Lanka does not need right now.

Technical Readiness

Sri Lanka's digital infrastructure — internet connectivity, smartphone penetration, cybersecurity — is not ready for a CBDC. A digital rupee that does not work in areas with poor connectivity would exclude the very people it is supposed to include. And a CBDC that gets hacked would be catastrophic for trust in the financial system.

My Position

I am not categorically opposed to a digital rupee. The financial inclusion benefits are real. But I believe Sri Lanka needs to address several prerequisites before building a CBDC:

• Robust privacy legislation that limits government surveillance through CBDC data
• Genuinely independent oversight of CBDC operations
• Improved digital infrastructure across the island
• Public consultation and transparent development process
• Absolute prohibition on programmable restrictions that control how people spend their money

A digital rupee built without these safeguards is not financial innovation — it is a surveillance infrastructure. Sri Lankans who lived through the 2022 crisis know what happens when you give unchecked power to those who control the money. Learn more about monetary policy and its crypto implications at our education center.

— Uvin Vindula