Daily Management Review

World’s First Central Bank Digital Currency Is Being Tested In Sweden


World’s First Central Bank Digital Currency Is Being Tested In Sweden
A step closer to the creation of the central bank digital currency (CBDC) of the world was taken after Sweden's Riksbank started test runs for an e-krona. This was announced by the central bank on Wednesday.
The Riksbank said that everyday banking activities such as payments, deposits and withdrawals from a digital wallet such as a mobile phone app would be among the general uses that would be allowed to be done with the e-krona if it eventually comes into circulation.
"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.
To assess the possibility of creating, circulating and issuing CBDCs, a partnership was formed between the central banks of Britain, the euro zone, Japan, Sweden and Switzerland in January this year.
Unlike other cryptocurrencies such as bitcoin, CBDCs are essentially electronic or digital forms of traditional money which will be issued and governed under strict regulations of the central banks of countries. In comparison, the likes of bitcoin are created or produced after users solve complex maths puzzles and disparate online communities govern them instead of any centralised body.
Central banks around the world have been prompted to consider issuing their own electronic currencies because of a very significant decline in the use of cash by people as well as soon to face competition from alternative currencies, such as Facebook's Libra.
The Riksbank said on its website that making payments in e-krona will be "as easy as sending a text."
Cash is used the least in the world in Sweden which makes this a crucial test to examine how central banks can react to people using less of the money they print.
No final decision on whether to issue an e-krona had been taken by it, the Riksbank said, and added that this pilot project that has been developed with technical assistance and suggestions from consulting firm Accenture, will simulate e-krona usage in an "isolated test environment".
According to data from Riksbank, in 2018, only about 1 per cent of the total GDP of Sweden existed in bank notes. In comparison, about 11 per cent of GDP is present in bank notes in the euro zone, 8 per cent in the United States and 4 per cent in the United Kingdom.
Swedish law makers were asked to deliberate the concept of legal tender and its role as a central bank in a digital economy by Riksbank i April of last year.
"The general public no longer having access to any form of central bank money can make it more difficult for the Riksbank to promote a safe and efficient payment system," the Riksbank said in April.
If the role of Riskbank in the payment system was indeed revised, it could lead to individuals and companies holding money in the bank which would rehash and reorient the current differences that exist between commercial banks and central banks.