When it comes to central bank digital currencies, Sweden is ahead of the curve. The country recently became the first major economy in the world to run a pilot test of a central bank digital currency. Riksbank, which is the Swedish central bank and the oldest central bank in the world, recently announced a yearlong pilot of a CBDC.
Why A Central Bank Digital Currency?
According to the bank, the use of physical cash is dropping in Swedish society. According to a report by NPR,
“In Sweden, however, especially in bigger cities, going cashless is becoming the norm. Purchases usually happen as digital transactions — by card, online or with Sweden’s most popular mobile payment app, Swish.”
Concurrently, various technological advancements have been made when it comes to payment methods and electronic cash. As a result, the Swedish central bank sees a potential problem that may come with the marginalization of cash in society. As a result, they are running this pilot project to look into the development of a CBDC, which will be called the e-Krona. It clarifies that no final decision has been reached when it comes to the issuance of the e-Krona.
Its statement notes that the bank is tasked with promoting an efficient and safe payment system. However, this task might be more difficult if cash is no longer the main means of payment by companies and households. AS a result, it needs to re-evaluate its role in the digital world.
2nd Nation To Issue Central Bank Digital Currency
Sweden becomes the second nation to issue a central bank digital currency after the Bahamas. However, the main difference is that Sweden is a very large economy and it could have a huge impact on the global economy. The Bahamas launched the Sand Dollar in 2019 as part of a test run. Another country that has been thinking of launching a CBDC is China, which is the second-largest economy in the world. This would most definitely be a major development if China launches its digital currency.
The E Krona Digital Currency Will Replace Everything
If the trial run proves to be a success, the e-krona is going to be released to the public. It is going to replace all other banking activities in the nation. According to a statement by the central bank, the pilot test is supposed to show how the public can use the e-krona. The statement notes that Sweden’s economy is mainly cashless with just about 1% of all transactions taking place in cash.
This follows a move by the ECB to examine the benefits of a CBDC in light of the potential launch of Facebook Libra. The launch of a CBDC could allow citizens to interact directly with their central banks. In April 2019, the Swedish central bank had issued a statement claiming that the general public being cut off from central bank money posed a serious risk to the bank’s ability to ensure the safety of the country’s payment system.
If the trials prove successful, it could mean the end of commercial banks in Sweden. However, the bank could decide to go the Chinese route and create a two-tier system that allows commercial banks to continue operating in the country.
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