Demonetisation on the cards for SL

• Demonetisation could be possible 2 years down the line
• Govt. considers  imposing a threshold on high-value cash transactions  and  tax incentives for digital payments

Sri Lankan authorities could look at potential demonetisation—to push the population to embrace digital payments once all key elements of the country’s digital infrastructure is in place, possibly two years down the line.

Tech entrepreneur, impact investor and ICTA board member Harsha Purasinghe shared that the government could follow a path similar to India’s 2016 demonetisation, but only once critical systems like digital ID and seamless payment networks are in place—likely within two years.

“Once digital ID and other key elements are established, demonetisation will be feasible,” Purasinghe said during a recent panel discussion on digital payments in Colombo. 

He emphasised the need to “collect more taxes to fund public services.”

The government has already formed a working committee to explore ways to promote digital payments. However, adoption remains sluggish. 

Mastercard’s Sri Lanka and Maldives Country Head noted that despite 20 million debit cards in circulation, the average card is used just nine times a year.

Central Bank officials have observed an unusual early spike in cash withdrawals, raising concerns over liquidity management and tax evasion.

“Typically, cash demand rises from March ahead of the festive season, but this year, we saw a significant surge two weeks earlier,” said Director of Payments and Settlements at the Central Bank Vasantha Alwis. Banks have begun stockpiling cash, fearing ATM shortages—a trend authorities suspect is driven by hoarding and tax avoidance.

LankaPay CEO Channa de Silva proposed banning high-value cash transactions and expanding tax incentives for digital payments to accelerate adoption.

“If you don’t criminalise large cash deals, people won’t shift to digital,” he argued, warning that excessive cash usage limits banks’ lending capacity, stifling economic growth.

However, critics questioned banks’ commitment to a cashless society, pointing to slow adoption of QR-based payments and failure to implement digital signatures—despite the legal framework existing since 2006.

“In Sri Lanka, financial institutions try to reinvent the wheel. And in the process, they invent a square and call it a wheel. Then we spend five years trying to turn it back into a wheel,” a participant remarked. (NF)