Sri Lanka is currently in a dire economic and political crisis, recently culminating in a default on its debt payments. The country is nearly empty of its foreign currency reserves, decreasing the ability to purchase imports and driving up domestic prices for goods. But why Sri Lanka? The crisis is rooted in what many believe to be the two most fundamental issues with the Sri Lankan economy: 1. Its imports exceed exports and 2. It spends more than it earns. The dual debts created by a trade and budget deficit are a recipe for economic crisis, which Sri Lanka is now bearing the brunt of. By understanding the history of Sri Lanka’s economy, we can best understand the nuances of its present collapse. 

Over the past decade, the Sri Lankan government has borrowed vast sums of money (amounting to around $51B) from foreign lenders to invest in massive infrastructure projects with the goal of driving economic growth. This management policy has escalated Sri Lanka’s current debt-to-GDP ratio in recent years, increasing from 42% in 2019 to 104% in 2021. Many of these costly infrastructure projects ended up being busts, and without any genuine source of revenue, the Sri Lankan government was left unable to repay the interest on its loans.

In 2019, with new government leadership under President Gotabaya Rajapaksha, Sri Lanka issued huge tax cuts in an attempt to respond to the strains on its tourism industry caused by violent demonstrations of Islamic extremism. The move inevitably backfired, instead impacting government revenue.

The country’s economic troubles were compounded with the arrival of the COVID-19 pandemic, causing border closures globally and stifling one of Sri Lanka’s most lucrative industries. Prior to the pandemic, in 2018, tourism contributed nearly 5% of the country’s GDP and generated over 388,000 jobs. In 2020, tourism’s share of GDP had dropped to 0.8%, with over 40,000 jobs lost to that point. Without a significant driver of economic growth in Sri Lanka, the country suffered. The crushing impact of COVID—which also slashed the volume of remittances the country received from Sri Lankans working abroad—combined with the government’s lower tax revenues prompted rating agencies to downgrade Sri Lanka to near default levels, meaning the country became alienated in international financial markets. 

Even more, just this year, the Sri Lankan government introduced a sudden ban on foreign-made chemical fertilizers to counter the depletion of the country’s foreign currency reserves by imports. However, with only local, organic fertilizers available to farmers, a massive crop failure occurred and Sri Lankans were subsequently forced to rely even more heavily on imports. The increasing prices on grain caused by the war in Ukraine and rising fuel prices globally only exacerbated the dangerous nature of this type of dependence. 

The debt Sri Lanka has incurred from both a budget and trade deficit is huge, hampering their ability to boost their reserves. Recently, aimed at devaluing the currency to qualify for a loan from the IMF and encouraging remittances, the government in March floated the Sri Lankan rupee — meaning its price was determined based on the demand and supply of foreign exchange markets. However, the depreciation of the rupee against the US dollar only made things worse for ordinary Sri Lankans, as costs for imports skyrocketed and, in consequence, domestic prices for food staples and fuel rose substantially. By the end of May, consumer inflation reached 39%, reflecting the impacts on Sri Lankans’ ability to purchase everyday goods. 

Sri Lankans have taken to the streets to express their frustration over shortages of food, fuel, and other products. As Sri Lanka reaches out to other countries for aid and undergoes a leadership transition, we will see whether Sri Lanka has the capacity to reverse the compounding effects of years of mismanagement & debt.

The invasion of Ukraine and the ensuing sanctions imposed on Russia have European nations worried about access to natural gas on which they have long depended. The conflict has increased pressure on energy resources, driving up the prices of oil, gas, coal and other commodities. But the war in Ukraine could hit more than just energy supplies in Europe. Global food security is also at risk. In particular, it could disrupt the wheat supply chain in several Middle Eastern and North African (MENA) countries.

Russia and Ukraine together supply more than a quarter of the world’s wheat, feeding billions of people in the form of bread, pasta, and packaged foods. The countries together are also key suppliers of barley, sunflower seed oil and corn, among other products. As tensions in the Mediterranean are posed to disrupt global shipments of wheat, corn and vegetable oil, the price of agricultural commodities has fluctuated sharply. Supplemented with the rising costs in important goods for farmers (i.e. fuel and fertilizer), the conflict could threaten global food security and social stability. 

Russia, the world’s largest wheat exporter, already limited its own shipments of wheat last year with an export tax designed to hold down domestic food prices. Further restrictions could prompt concerns about social unrest and a disruption of the wheat supply chain in other countries, particularly in Turkey, Egypt, Kazakhstan and other parts of Europe where wheat is a large part of regional diets. 

The market price of wheat could become a systemic problem for poorer countries in the MENA region. It has already risen 35% since Russian forces invaded Ukraine. The conflict will likely diminish wheat supplies and hurt the food economy in the Middle East and North Africa (MENA) region, resulting in government policy for rationing and cost increases that’ll contribute to social unrest. 

How the war will affect food security in the MENA region depends on how long the conflict lasts. If farmers in Ukraine aren’t able to cultivate and harvest wheat crops by July 2022, the supply chain will be interrupted. But even if they are, there’s no guarantee they will be able to use the necessary infrastructure to transport grain to the ports.

October 31, 2008 will spook the global financial system for the rest of time. 

Near the brink of collapse, Wall Street had just been propped up by the Troubled Asset Relief Program (TARP) legislation on October 3, which gave $700 billion of taxpayer money to banks. Understandably, U.S. citizens were furious. Why should the bankers who caused an economic meltdown get a bailout?

Recognizing people’s cries, an unknown figure named “Satoshi Nakamoto” emerged on Halloween night and released a seemingly unassuming whitepaper entitled “Bitcoin: A Peer-to-Peer Electronic Cash System.” What emerged, as a result, has created a $3 trillion industry that self-purports economic sovereignty and promises an equal financial system for all. 

Bitcoin is a decentralized digital currency meaning that it isn’t issued by a central bank or government. Instead, Bitcoins are produced through a computational process called “mining”; when someone sends Bitcoin to someone else, miners process the transaction and permanently record it into the blockchain ledger to prevent someone from “double-spending” their money. 

The introduction of Bitcoin poses great implications on the use of cash to transact. From the early Lydians to modern Mesopotamians, the usage of “sound money”–money that is not liable to sudden depreciation by economic changes such as inflation–has been characterized as one of the foremost ways that a society can store value and exchange it. However, over time as we transitioned from seashells, beads, and metals to Dollars, Euros, and Pesos, we traded off the ‘store of value’ element for better unit accounting. Slowly, as inflation has ravaged, the money we have has lost its value to inflation–just over 6% this year! Bitcoin solves this crisis. Because Bitcoin has a finite supply of 21 million coins, it maintains the store of value element that previous ‘sound monies’ possessed. It supplements this with the ability to be divided into fractions of a Bitcoin to the 8th decimal place–dollars only go to the 2nd decimal place! Bitcoin gives individuals far more control over their money and its long-term value.

Through my various volunteering opportunities, I’ve interacted with many people who’ve fled their countries in seek of refuge and a better life leaving all of their assets, controlled by authoritarian governments, behind. Coming with nothing but the clothes on their back and hope in their heart, they sought to build a better life for themselves. Having immigrant and risk-averse parents that place a great deal of emphasis on financial security, I have always stressed the importance of contingency plans.  I see Bitcoin as being one of the greatest factors in curtailing stories like this. Because Bitcoin is fully decentralized, individuals are able to flee with their assets, fully independent of corrupt regimes, and are able to start a new life much easier. 

I see value in the Bitcoin revolution beyond price speculation and hype. Rather, I see a paradigm shift in governance, finance, and personal sovereignty–and that excites me.