Sweden’s central bank has launched a pilot that aims to test a “simple and user-friendly” digital krona, marking another step towards its plan to roll out an e-currency.
The Riksbank has announced that it is working with the consultancy Accenture on an year-long project to develop a distributed ledger technology (DLT)-based platform.
Sweden is widely considered an e-currency pioneer, and the pilot – which aims to show how an e-krona could be used by the general public – takes the Scandinavian state a step closer to being the first major country to launch a central bank digital currency (CBDC).
The Riksbank says that its objective is to create, in an “isolated test environment”, a digital krona that is simple and user-friendly. The technical solution will be based on DLT – of which blockchain is the most famous example – and assessed in a simulated test environment designed to examine how it will be handled by users such as citizens and banks.
In the test environment, simulated users will be able to hold e-kronor in a digital wallet and make payments, deposits and withdrawals via a mobile app. Users will also be able to make payments via ‘wearables’, such as smart watches.
The pilot runs until the end of February 2021, with the option to extend and develop the technical solution. The decision on whether to roll the scheme out for public use would ultimately be a political one, the Riksbank points out.
Private currency alternatives
The Riksbank emphasises that Sweden has yet to commit to issuing an e-krona, and that the pilot’s main objective is for the bank to “increase its knowledge”. As well as offering the public the option of using a digital form of the krona, the bank says that the e-krona would “also reduce the risk of the krona’s position being weakened by competing private currency alternatives”.
Facebook confirmed its plans to launch a global cryptocurrency, known as Libra, last summer, but has faced opposition from lawmakers and regulators on both sides of the Atlantic.
Watching Sweden closely
Global Government Forum reported earlier this month that the Riksbank is among a small group of central banks pooling expertise on central bank digital currencies (CBDCs). The Bank of Canada, the Bank of England, the Bank of Japan and the Swiss National Bank, together with the European Central Bank (ECB) and the Bank for International Settlements (BIS), are sharing experiences as they scope out the potential for CBDCs in their home jurisdictions.
Sweden in particular was also highlighted in the UK’s ‘Access to Cash Review’, published in March 2019, which said the country offered lessons for policymakers wrestling with the challenges created by declining cash use.
Central banks representing a fifth of the world’s population say they are likely to issue CBDCs in the next few years, according to a BIS report released last month. But the report concluded that “there is no evidence of a widespread or general move to expand this research into experimentation and pilot arrangements” although “a few central banks with sufficient motivation are proceeding to pilot various designs”.
The BIS report points out that the motivation to explore a potential CBDC varies by country. Advanced economies are typically acting to pre-empt any issues that might be faced by the general public in accessing central bank money, while emerging market economies are aiming to reduce reliance on cash.