Sweden Begins Tests on a Central Bank Digital Currency
Тhe Riksbank, Sweden's central bank and the oldest central bank in the world, recently announced it had started trials for a central bank digital currency (CBDC), called the e-krona. If the trial run is a success, Sweden could be the first country in the world to launch a CBDC.
Purpose of the Е-Krona
If the e-krona achieves mass circulation, it will help to boost everyday banking activities including payments, withdrawals, and deposits. Everything will be conducted via a digital wallet that can be downloaded to your phone.
According to a statement by the bank, this project is going to show how the e-krona can be used by the masses. At the start of this year, the central banks of some of the biggest economies in the world met to discuss CBDCs. Those present at the meeting were the ECB, the UK, Sweden, Japan, and Switzerland. Thus far, only Sweden has announced plans to launch a CBDC.
What is a CBDC
A CBDC is a form of digital money that has many of the characteristics of physical money. For instance, it is issued by the central bank, which also controls its supply. This is unlike cryptocurrencies, which are the result of a mining process and are not controlled by any centralized organization. Instead, a network of interconnecting computers spread throughout the world governs the network on which digital coins such as Bitcoin run.
Why the Move towards E-Krona
One reason why Sweden is considering a CBDC is due to the sharp decline in the use of physical cash. Only a small percentage of the population in Sweden uses physical cash. Almost everyone relies on a digital payment system. This might also be the reason why other countries in the developed world consider issuing a CBDC.
Another reason might be the potential launch of Facebook’s Libra. Most major economies around the world are worried about the impact Libra will have on their monetary policies. They are aware of the huge influence the company has in Western populations. Besides that, they fear they may not be able to regulate the Libra coin once it is launched in their economies. This has caused many central bankers to begin studying digital currencies seriously.
Ease of using the E-Krona
According to a Riksbank statement, using the e-krona will be as easy as sending text messages. Sweden is a great testbed for a digital currency. Not only is it an advanced economy, but it also has one of the lowest rates of cash usage in the world. For instance, data from the central bank showed that only 1% of the country’s GDP was in physical cash in 2018. In the US, the figure is 8%, in the UK, it is 4%, and in the euro zone - 11%.
Future of the E-Krona
The Riksbank has not made a final decision on the e-krona. It is only carrying out a pilot test to see if it would offer any meaningful benefits. As a result, the tests will occur in an isolated environment and will not involve the public.
In April 2019, the central bank requested lawmakers to review "the concept of legal tender". According to the bank, if the public could no longer access central bank money, it would be difficult for the Riksbank to promote a safe and efficient payment network.
One of the outcomes of the pilot test might be that citizens can open an account directly with the Riksbank, eliminating the need for commercial banks. The pilot program is going to run until February 2021 and will be blockchain-based.
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