Plans to launch Sweden’s own digital currency, which have been in the pipeline since 2016, recently passed the first pilot stage, the Central Bank of the country (The Riksbank) announced in a press release.
So why is Sweden doing this?
Cash is slowly dying in Sweden, with common alternative payment methods. The number of banknotes and coins in circulation has dropped by 40 percent since 2009, while popular smartphone apps like Swish make it possible to make electronic payments almost as fast as delivering physical money. Swedes are also among the world’s largest card users.
“Sweden is notably ahead of the UK, continental Europe and the US, which is far behind in this trend. Due to its degree of technological development, you see a lot of new and interesting things in economics long before you see them elsewhere, ”said HSBC global economist James Pomeroy. told The Local in 2018.
But what does a cashless society really mean?
Sweden had previously predicted that become a cashless society by 2030 with 80 percent of retail payments already made by card.
Concerns have been expressed, including by the Riksbank, about how the cashless society affects certain groups, for example international residents that they cannot sign up for certain digital payment methods without a Swedish bank account or person number, and the elderly.
So even though the physical payments are declining, the Riksbank wants the e-krona to be seen as a supplement to cash.
The proven digital currency also has similarities to cash. E-kronor are uniquely identifiable and can only be created by the Riksbank, similar to real physical money.
How exactly would an e-krona work?
The e-krona used in the Riksbank pilot project uses blockchain technology and is in the form of a singular “token”. Transactions are completed through nodes managed by the Riksbank and other participants, such as payment service providers.
A service provider can request e-kronor that are issued from the Riksbank in exchange for the user uploading his account to the Riksbank’s RIX settlement system.
The customer can then exchange money in their bank accounts for e-kronor, which they can use for transactions instead.
When a person uses e-kronor for a transaction, the service provider nodes verify that the e-krona goes back to the Riksbank. The e-krona is then recorded as consumed and the transaction is accepted.
An image provided by the Riksbank shows how the e-krona could work.
What happens now?
After the pilot, the Riksbank said they will continue to work on a digital currency that can be used in everyday life.
Phase 2 will include working with potential resellers, developing offline features, and assessing the scalability of retail payments. This phase is expected to last at least one year.
How likely is a digital currency to actually occur?
There is still a long way to go before a digital currency becomes a reality. Several important questions remain. For example, there is currently no legislation in this area and new legislation would be needed. Protecting the identity of the user is also an important issue, as each e-krona contains information about previous transactions and recipients.
To this day, no decisions have been made on whether an e-krona should be issued and what it would look like. The Riksbank is clear that this is a technology that needs more research and the pilot is not the final solution that has been chosen as a digital currency.
George is Digismak’s reported cum editor with 13 years of experience in Journalism