.svg)
A new report by the Swedish government has raised doubts about the need for an e-krona, marking a change in tone for a country that was a first-mover in the study of central bank digital currency (CBDC).
A Swedish government inquiry has published a report on "The State And Payments", arguing that there is no “sufficiently strong” societal reason to issue an e-krona at this time.
The inquiry's remit was to investigate the role of the state in the payments market, and to consider what that role should be in future.
According to the inquiry, the emergence of new means of payment and the reduced use of cash were key considerations in the study.
In 2017, when Riksbank first began studying CBDC, cash use had already declined from 40 percent of payments in 2010 to 15 percent in 2016. By 2022, this figure had dropped to below 10 percent.
Based on these trends, the inquiry considered a number of possible development scenarios in the payments market.
Although Sweden has one of the lowest rates of cash use in the world, the inquiry said that coins and banknotes will continue to be “in demand” for the foreseeable future.
It also noted that cash has received protected status under legislation passed in 2019 and in effect since 2021 — a move that the inquiry commended.
“In the opinion of the inquiry, the monetary system in Sweden is stable and enjoys the confidence of the public, even in the case of digital means of payment created by banks,” it said.
“These are subject to a comprehensive regulatory framework and financial supervision. In addition, central government has a number of tools to ensure the stability of and confidence in the system, and to safeguard Sweden’s monetary sovereignty.”
The inquiry noted that the introduction of e-krona could make the payments ecosystem “more efficient and inclusive”, by facilitating competition and innovation from beyond traditional banks.
However, it also argued that the state has other tools at its disposal to achieve those same objectives, and could do so without endangering confidence in or the stability of the monetary system.
“The inquiry therefore does not currently see sufficiently strong societal needs for the Riksbank to issue an e-krona,” it said.
“Given that development is occurring rapidly, economic, political and technological changes may prompt a new assessment.”
Could Sweden be influenced by the European Central Bank?
One development that is likely to lead to a re-evaluation of Sweden’s stance on CBDC is the potential launch of a digital euro.
As noted by the inquiry, digitalisation of commerce and payments has strengthened Sweden’s links to the EU, and the European Central Bank (ECB) is due to make a formal decision on issuing a CBDC, the digital euro, by the end of 2023.
“This raises the question of whether, in the long run, a digital euro could mean that the euro is used more widely for payments in Sweden,” said the inquiry.
“Such a development could make monetary policy less effective and make work with financial stability more difficult.”
The inquiry, therefore, encouraged the Riksbank to continue to study the technology and a potential timeline for deployment.
If Sweden was to launch an e-krona, it could only do so with legislative backing from parliament, the Riksdag.
In 2024, therefore, the inquiry suggested that the Riksbank should petition the Riksdag with its latest assessment on the need for an e-krona.
If the Riksbank determines that there is a need for an e-krona, it should be as a complement to coins and banknotes, the inquiry said, and it should be offline payments-ready.
It should also be able to be used by private individuals to make person-to-person payments, but it should be “possible to restrict the public’s holdings of or transactions with e-krona”.
An early start but still no commitment from Sweden
The publication of "The State And Payments" follows the closing of Phase 3 of the Riksbank's e-krona pilot earlier this year.
Phase 3 focused on how the central bank could interact with other actors in the payment market to give the general public access to e-krona.
It also studied how conditional payments could be deployed and how e-krona could simplify cross-border payments.
“The work has shown how the technical solution can make it possible to develop more advanced payment services for the benefit of users,” said the central bank.
“However, conditional payments can mean that more data on the users is shared within the e-krona network.
“It is important that issues like this are investigated thoroughly, not least to protect personal integrity.”
In its full report on Phase 3, the Riksbank noted that these advanced payment services may require additional regulation to counteract the data gathering and transparency that are inherent to distributed ledger technology (DLT).
“For the Riksbank, which wants to maintain its role on the payment market with the intention of knowing as little as possible about how end users use the e-krona, this is a potential disadvantage,” it said.
Rickard Eriksson, senior advisor to the Swedish Bankers' Association, criticised the project's use of DLT.
"To me, it seems like the use of DLT doesn't add anything,” he told Vixio. “They are making the current thing that the current system is doing but in a more complicated way.
“It is a peculiar choice of technology so far, and I don't see how it would be an innovation. Rather, it is just a central bank doing what private banks do.”
Overall, the Riksbank’s position on e-krona has remained one of curiosity but indecision over the years.
In 2021, as reported by Vixio, the Riksbank said it sees financial inclusion and monetary policy benefits in e-krona, but its guiding principle on the technology is to “do no harm”.
