While a decrease in the use of cash has been observed in a number of different countries, the trend in Sweden over the past decade has been particularly notable. As soon as the Riksbank, the country’s central bank, noticed the trend, it began looking into how it would be possible to issue digital currency as a supplement to cash.
The e-krona project is what emerged as a consequence of this
During her opening remarks at the DC3 the ekrona conference that was held by the International Telecommunication Union, Riksbank First Deputy Governor Cecilia Skingskley revealed that in the year 2020, cash would account for forty percent of all payments processed at points of sale (ITU). “However, during the course of the previous year, we counted the cash in fewer than 10% of those payments.”
She went on to remark that the actual amount is probably much lower due to the widespread COVID outbreak. She said this in the next sentence.
The expansion of the usage of instant digital payments is another phenomenon that has the attention of the central banks of the world. The world of banking has, up until very recently, regarded them as a specialised service with little relevance in practical settings.
Take note, monetary authorities in charge
Two other factors to take into account are the expansion of online shopping and the amount of money that is remitted back to one’s native country.
Specifically speaking, what does this suggest for the nation’s central banks, to say nothing of the economy as a whole? Skringsley is of the opinion that there will come a day “when consumers and businesses can’t pay each other using the ‘default’ choice — cash,” and he thinks that this day may arrive sooner rather than later.
Skringsley was referring to the recent increase in the value of crypto assets when he said that both the number of crypto assets and their market cap had “mushroomed.” Inefficiency, volatility, and opacity are frequently characteristics of the types of cryptocurrencies that fall within this category. She is a central banker, and in that role, she is of the opinion that these assets do not meet the requirements of the “money test.”
“A decent kind of money gives consumers both a secure place to deposit value and an effective medium of trade,” she explained, referring to the benefits of using such a currency.
According to Skringsley, who believes that the conclusion has not yet been reached, the topic of stablecoins, which “piggyback on the confidence fiat money currently delivers,” is still up for discussion.
Say ‘hej’ to e-krona
In 2017, the Riksbank started the project that would eventually become the e-krona by conducting a needs study for an improved version of central bank-issued money that would be suitable for use in a digital society. This study was the first step in the development of the project that would eventually become the e-krona.
Following discussions regarding the modernization of Swedish krona banknotes and coins with national and international agencies, the project team investigated several different suggestions for appropriate technological solutions. These discussions took place following the introduction of the new Swedish krona banknotes and coins. In addition, legal issues were investigated to ensure that the Riksbank would have a crystal clear mandate to issue electronic Krona. This was done so that the electronic Krona could be issued.
What’s going on beneath the hood?
Despite the fact that no definitive decisions have been made on precisely which distributed ledger technology would be utilised for the e-krona project, the idea was inspired by distributed ledger technologies such as blockchain. The bank is currently focusing its efforts on obtaining new solutions that are both scalable and widely available. These solutions, in addition to modernising money, would provide the same level of comfort and security that banks provide today.
Stablecoins are forms of digital currency that give users the ability to have a greater sense of assurance regarding the safety of their money.
Another hotly debated issue at the present concerns the manner in which CBDC is being distributed in Sweden. Skringsley indicated that Riksbank would be the operator, but the bank would not be responsible for providing payment services in this scenario. Because of this, competition will be encouraged, and the ecosystem’s resilience will be strengthened, as service providers in the private sector will be given the authority to develop innovative new services on the back of infrastructure provided by the central bank. As a result of this, competition will be encouraged, and the ecosystem will be more resilient.
The project is currently in Phase 2, which just started off not too long ago, having gotten its start back in February of 2020 with the pilot phase. This is to identify whether or not the e-krona can be scaled, whether or not it can be scaled, and how other entities can be connected to the network. The purpose of this evaluation is to discover how well the e-krona performs offline. Terminals used by merchants at points of sale are one type of example of such an external entity.
Even though an official investigation into the CBDC issue is now being carried out by the Swedish parliament, the Riksbank has not yet taken a decision about whether or not it will issue any electronic krona at all. The increase in demand will need the modification of existing laws, and the e-krona will be required to comply with any new restrictions.