Sweden's central bank, the Riksbank, is moving closer to issuing a central bank digital currency (CBDC).
In September 2017, the bank published the first report of the E-krona Project, in which it looked at the potential for a state-issued digital currency. On Friday, October 26, it published the second report. According to a press release, the use of cash in Sweden is in decline. A survey conducted by the Riksbank in 2018 showed that only 13 percent of Swedish citizens used cash in their latest purchase while in 2010 that number was 39 percent. This decline in the use of cash presents a unique problem for Sweden's central bank. The press release states:
"Today's digital payment market means that we face a new situation in which all means of payment accessible to the general public are issued and controlled by private agents. If the state, via the central bank, does not have any payment services to offer as an alternative to the strongly concentrated private payment market, it may lead to a decline in competitiveness and a less stable payment system…Ultimately, it may also risk eroding basic trust in the Swedish monetary system. Some of these problems could be neutralized or mitigated by an e‐krona."
Benefits of Issuing a CBDC
By considering issuing a digital version of Sweden's fiat currency, the Riksbank is not looking to replace the Swedish krona, but instead use the e-krona as a complement to physical cash.
The issuance of a CBDC has the potential to strengthen the entire payments system in Sweden by offering an alternative to private payment systems especially in times of crisis when these private systems are subject to failure. Doing so would provide citizens access to a "state-guaranteed means of payment" and not leave Swedish citizens dependent on private payment solutions.
What Needs to Be Done
Before the Riksbank can begin issuing a CBDC there is still much to be done. It is first looking into building an interoperable platform that private shop owners, banks, and e-companies can join so that e-krona can be saved and spent at any bank, store, or website.
Additionally, the Riksbank must make sure its CBDC adheres to all Swedish laws and regulations. An e-krona project assessment revealed that the introduction of a CBDC does fall in line with the bank's plans to promote a safe and efficient payment service for the citizens of Sweden. However, for the issuance of a CBDC to be completely legal, the Riksbank feels that the Sveriges Riksbank Act, which charges the central bank with maintaining price stability and minimizing inflation, needs to be amended in some undisclosed way.
The Riksbank will consider launching a pilot program to develop an interoperable payment platform for a digital currency that has real value, is traceable, and is compatible with other central agencies. The bank also realizes that an official Swedish position on the digitalization of the Swedish payment market needs to be drafted. The launch date for this pilot program has not been announced.
Although a CBDC has yet to be issued by any central bank, the Riksbank is not the alone in doing this kind of research. In May of this year, the Bank of Korea announced the creation of a task force to study the possibility of issuing a CBDC and the influence it would have over the country's financial sector. Just a few weeks later, Norway's central bank announced it had extended its study on how a CBDC could act as a supplement for cash. And in July, researchers from the Bank of Canada published a working paper regarding the befits of a CBDC.