The Governor of Sweden’s Central Bank has outlined a vision of a digital state money dubbed e-krona in an ‘Economic Commentaries’ document published on 15 October.
Stefan Ingves, the Governor of Sweden’s Riksbank, shared his thoughts on the future of the country’s relationship with physical and digital money in an extensive written commentary which stresses the need for a Digital Currency issued by the Central Bank.
Ingves outlines the institution’s responsibility of ensuring safe and efficient payments and ensuring that the krona, Sweden’s national currency, maintains its value. The Governor then adds that cash needs to be ‘protected and supplemented’ with a digital alternative.
Cash is no longer King, but still needed
The first section of the Central Bank Governor’s focuses on how Sweden’s relationship with physical cash has changed since its dominance in the 1900s in comparison to present day conditions.
The major takeaway is that digital payments are more accessible and attractive to use for consumers in Sweden and advances in technology have improved transaction systems like instant payments between bank accounts.
Ingves’ notes highlight research that shows that Sweden has one of lowest cash usage rates of any country in the world, with cash as a percentage of its GDP having fallen to just 1 percent.
While the Governor outlines a steady move towards digital payments, he also stresses that physical cash still fulfils a number of important functions. Ingves says that cash creates a uniform monetary system with a single unit of exchange and is also ‘emblematic for the Swedish
Krona’. He also suggests that cash is a safe alternative to commercial bank money and can be used in instances where there is no electricity or digital infrastructure.
Nevertheless he acknowledges the decline of physical cash usage in Sweden and proposes that certain legislative approaches be considered to ensure that some percentage of transactions using physical cash always remain.
Enter the e-Krona
Sweden’s Central Bank is already investigating whether there is merit and if it’s possible to issue a digital equivalent of physical cash dubbed an e-krona. This would be issued by the Riksbank and would be available to the general public in Sweden.
“It would work with the existing payment system and be exchangeable one for one for cash or bank money. In that the e-krona would be digital, it would be better adapted to our digital society than cash is, and it could be used in situations where it is not possible to pay with cash now,” Ingves wrote.
The governor also said that a digital krona would retain some functions of physical cash in the future, even eventually serving as the basis of a uniform monetary system.
Ingves even suggested that an e-krona would also reinforce the national currency as a major means of payment if digital currencies like Facebook’s proposed Libra token began to compete with the krona as a preferred means of payment.
“If we were to find ourselves in a situation where the Swedish krona is no
longer regarded as the most important currency alternative for making payments in Sweden, “we could ultimately lose the possibility to conduct our own monetary policy and to provide the banks with liquidity in a crisis. This would hamper our possibilities to ensure that payments can be made safely and efficiently and that the krona retains its value.”
The Riksbank has not taken any formal decision on the potential issuance of an e-krona as it requires legal foundations and political support.
Research is underway to see if the Riksbank should have the right to issue an e-krona in future, Ingves wrote:
“According to the European Union’s directive on electric money, the member states shall concede the right for central banks to issue electronic money that can be used by the general public This directive should be reflected in Swedish law.”
The Riksbank is busy conducting a pilot project with the help of Accenture which is testing how an e-krona could potentially look and function. The project is looking to create a test environment where a digital krona runs efficiently, is user friendly and meets high security and performance standards.