4 - 7 minute read
Sweden’s central bank Riksbank recently published a report detailing the third phase of its central bank digital currency (CBDC) research, which focuses on a collaborative model for retail payments and conditional payments. The report highlights governance as a crucial question for collaboration, and it offers three levels of options to weigh. This article will explore the context, importance, and implications surrounding the development of the e-krona in Sweden’s push towards digitalization of its payment system.
Sweden is a country that is rapidly moving towards a cashless society. The use of cash in the country has dropped significantly in recent years, and the COVID-19 pandemic accelerated the trend. The shift towards digital payments has spurred the Riksbank to explore the development of the e-krona, with the aim of promoting a safe, efficient payment system that is accessible to all groups in society. The e-krona would be Sweden’s digital currency, allowing consumers to make digital payments using a public digital ledger.
The Riksbank has been researching the CBDC since 2020, with the initial priority being collaboration with existing private payment services. The report’s focus on a collaborative model for retail payments and conditional payments is the third phase of the research, and it highlights the challenges that need to be addressed. The report notes that the governance of the e-krona is a critical question for collaboration, and that setting the parameters for the payment system could have a high impact on innovation.
The report offers two extremes for the e-krona, with the lowest level being a set of guidelines that could give participants so much freedom that “it may be difficult for the public to form a common understanding of what an e-krona is.” The higher end of the spectrum is a Riksbank-operated app, where the interface and range of services would be standardized for all participants. This would be a significant development in the digital payment space, but it would limit innovation.
The report also touches on the transparency of the e-krona, which could have implications for bank secrecy and could be useful for uncovering bad behavior on the part of service providers. The Riksbank conducted a successful trial conditional payment involving the purchase of a car. This was a positive sign for the potential e-currency’s programmability, but it raised privacy questions due to the extra information necessary to complete the complicated transaction. The report noted that if conditions were placed on money, it could risk becoming something more like a gift card and thus no longer money.
“If conditions are placed on money, for example that it can only be used for certain purchases or on certain occasions, it risks becoming something more like a gift card and thus no longer money.”
The potential for Sweden’s e-krona and the country’s drive towards digitalization will have a significant impact on the forex market, particularly for the Swedish krona. If the e-krona is successfully launched, it could lead to increased adoption of digital payments, which could lead to a decrease in demand for the krona. Furthermore, the success of the e-krona could spur other countries to develop their own digital currencies.
For traders, it is essential to pay attention to the developments of the e-krona and the Riksbank’s research into CBDCs. If the e-krona is successful, it could mean a shift towards a cashless society, which could impact the forex market. Traders should also pay attention to updates on the governance of the e-krona, as it could impact innovation and adoption.
“When cash takes a back seat in favour of digital services from private actors, the Riksbank’s direct role on the payment market is reduced. The Riksbank may thus find it more difficult to fulfil its task of promoting a safe and efficient payment system accessible to all groups in society.”
The Bottom Line
Sweden’s central bank Riksbank is exploring the development of the e-krona, which could lead to increased adoption of digital payments, impacting the forex market. The e-krona’s governance is a critical question for collaboration, and setting the parameters could have a high impact on innovation. If the e-krona is successful, it could mean a shift towards a cashless society, and traders should pay attention to updates on the development and governance of the e-krona.