What has happened?

Sweden is planning to develop a new electronic currency, the e-krona, as cash becomes increasingly marginalised in the country.

What does this mean?

In 2017, the Swedish central bank, the Riksbank, started a project to examine the possibility of creating a central bank digital currency.

The Riksbank has now issued a new report on its e-krona project, in which it says that, as cash is on the decline in Sweden, a digital currency could ensure that the public still has access to a state-guaranteed means of payment.

"Not to act in the face of current developments and completely leave the payment market to private agents will ultimately leave the general public entirely dependent on private payment solutions, which may make it more difficult for the Riksbank to promote a safe and efficient payment system", the report said.

According to a Riksbank, more and more consumers turn to electronic payments, with a 2018 survey showing that only 13% paid for their most recent purchase in cash, while that figure was 39% on 2010.

"As more consumers turn to electronic payments, it will ultimately no longer be profitable for retailers to accept cash. If the trend continues, Sweden may find itself in a few years' time in a position where cash is no longer generally accepted by households and retailers", the Riksbank said.

It added:

"Adopting a position on whether Sweden should introduce an e-krona will take time. The analysis needs to continue so that we increase our knowledge about the consequences and effects of an e-krona. At the same time, technical solutions have to be devised so that an e-krona can be developed and tested."

The Riksbank is therefore proposing to:

  • begin to design a technical solution for an e-krona in order to test which solutions are practical and possible to realise;
  • draw up proposals for legislative amendments needed to clarify the Riksbank's mandate and an e-krona's legal standing; and
  • continue investigating the viability of an e-krona.

The Riksbank said that the e-krona could complement physical cash, and in crises, when private payment systems fail, it could work as an alternative system, which would help increase stability in the payment system.

The bank added that the e-krona could be held either in an account at the Riksbank (account-based) or be stored locally, for example on a card or in a mobile phone app (value-based).

Both types of e-krona assume that there would be an underlying register, with transactions recorded and safeguards in place to trace who is the rightful owner, meaning that digital transactions with e-krona will be traceable.

The e-krona will also have to interact with other systems and agents, such as banks and other companies, and systems will have to be in place to enable money laundering checks.

The Riksbank said that a value-based e-krona is compatible with the Sveriges Riksbank Act, but the Act would need to be amended for an account-based e-krona.

What happens now?

The Riksbank said that it will "initiate a pilot programme to develop one or more possible technical solutions for a comprehensive e-krona concept that provides the [bank] with greater room for manoeuvre and knowledge prior to a decision on whether to issue an e-krona".

Next steps

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