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It is said that for the average person in Sweden the introduction of the e-Krona would make payments “as easy as sending a text”.
Bankers in Sweden are concerned about the potential effect of the proposed e-Krona project on the industry. The least cash-dependent country in the world, is, like most economies around the world, seeing a decline in the number of cash transactions. The Central Bank, Riksbank, has been considering making payment digital. Per Bolund, Swedish Financial Markets Minister announced in December 2020 that the Riksbank Finance Committee is discussing the prospect of a Central Bank Digital Currency (CBDC). The inquiry is set to end in November next year. Only after then will a decision be made.
With the spread of the Coronavirus, governments and financial institutions last year were compelled to investigate, and some cases implement, the use of cashless payments. 2020 saw Central Banks around the world launching studies into the merits and demerits of CBDCs. Some countries presently exploring the option are China, Japan and Ukraine. The Bahamas and Cambodia announced the launch of their respective CBDCs in October last year.
For the average person in Sweden, the introduction of the e-Krona would make payments “as easy as sending a text”. It would also mean direct access to the Riksbank as this opens up the option of side-stepping institutions like commercial banks. The central bank also offers better security and interest rates as compared to local banks.
And therein lies the problem for commercial banks.
Masih Yazdi, CFO at Swedish corporate bank SEB told Reuters:
“A rational household would hold its money with the Riksbank. If you have a bank account but you can – at the click of a button – move your money to the central bank… that could risk instability in the system.”
Bankers are therefore uneasy about what this would mean for the banking system. People moving their money from deposit accounts into the digital currency would mean less funding for banks, causing them to become more contingent on wholesale markets for liquidity. This exodus into the central bank could result in debt and unprofitability in the banking sector, causing overall financial instability. Riksbank Deputy Governor Cecilia Skingsley countered this by stating that people can already leave the banking system by purchasing treasury bills. She added that she did not think the introduction of the e-Krona would “fundamentally change that to a worse situation”
Yazdi also pointed out that a blockchain-based digital currency would make all payments traceable. While this would potentially curtail illegal transactions like arms deals and drug trafficking, it raises some privacy concerns.
Another concern is how Riksbank would utilize the money taken in. Rickard Eriksson a Swedish Bankers Association advisor wondered whether the central bank might lend funds to banks to offset deficits resulting from the lack of deposits. He opined, “I don’t think the Riksbank has really thought about this or come up with good answers”.
Riksbank seems set on going through with the project as the bank’s Governor Stefan Ingves, in October implored the government to “review the concept of legal tender” and prepare legislation to make way for the e-krona.
He declared that “there shall be digital state money as legal tender, an e-krona, issued by the Riksbank”.