Sweden testing first central bank digital currency, e-krona

Ben Ng February 21, 2020 17:00

Sweden’s central bank, the Riksbank, said it has started testing its proposed “e-krona”, taking the world’s least cash-dependent country a step closer to creating the first central bank digital currency (CBDC).

The year-long pilot project will use distributed ledger technology (DLT) such as blockchain which supports cryptocurrencies.

CBDCs are traditional money, but in digital form, issued and supervised by a country’s central bank. By contrast, cryptocurrencies such as bitcoin are produced by solving complex math puzzles and governed by disparate online communities instead of a centralized body.

In the e-krona project, which the Riksbank is conducting with Accenture, simulated users will be able to hold e-kronor in a digital wallet as well as make payments, deposits and withdrawals via a mobile app. Users will also be able to make payments via wearables such as smartwatches, and cards.

The pilot project runs until the end of February 2021, with an option to extend and further develop technical solutions, according to the Riksbank.

“The aim of the project is to show how an e-krona could be used by the general public,” the Riksbank said in a statement.

A newly developed technical platform will be adopted with a user interface that enables e-krona payments from a mobile phone, a card or a watch.

The platform also contains simulations of payment service providers, retail outlets and other parts of the Swedish payment system.

In an interview with MIT Technology Review, Riksbank economist Gabriel Söderberg said the Riksbank has examined a number of technologies that could support the e-krona, including cryptocurrency systems such as bitcoin.

According to the Riksbank, the technology would have to be user-friendly and inclusive. E-krona would also have to be available 24/7/365 and payments must be instant.

The pilot project is also looking into the possibility of building a technology that will enable the use of e-krona offline.

Making payments in e-krona will be “as easy as sending a text”, the Riksbank said on its website.

“An e-krona would offer the general public continued access to central bank money, as cash has done, but in digital form. Offering an e-krona, which is available to everyone, will also reduce the risk of the krona’s position being weakened by competing private currency alternatives,” it added.

Along with the emergence of cryptocurrencies such as bitcoin, social media giant Facebook's announcement last June of plans to create its own cryptocurrency, Libra, was seen as a catalyst for central banks around the world that are considering issuing digital currencies of their own.

China had earlier revealed plans to develop its own digital currency.

The People’s Bank of China (PBoC) said last month it has basically completed the “top-level” design and technology standard for the development of its digital currency electronic payment (DCEP).

As part of the preparations for a market launch, the PBoC will select geographical regions for the pilot trial of the digital currency.

In January, the central banks of Britain, the euro zone, Japan, Sweden and Switzerland joined forces to assess the case for issuing CBDCs.

They are reportedly considering holding their first meeting in mid-April in Washington, joined by the Bank of International Settlements, to discuss ways to streamline cross-border settlement and security issues related to the use of digital currrencies.

"There is currently no decision on issuing an e-krona, how an e-krona might be designed or what technology might be used," the Riksbank said.

“The main purpose of the pilot is for the Riksbank to increase its knowledge of a central bank digital krona."

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Ben Ng

EJ Insight writer