Sweden begins testing blockchain-based central bank digital currency e-krona

Sweden’s central bank, the Riksbank, said on Wednesday it had begun testing an electronic version of the krona, bringing the country a step closer to creating the world’s first central bank digital currency (CBDC).

If the e-money eventually enters circulation, it will be used to simulate everyday banking operations such as payments, deposits and withdrawals from digital wallets such as mobile phone apps, the Riksbank said.

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

In January this year, the central banks of the United Kingdom, the eurozone, Japan, Sweden and Switzerland jointly assessed the issuance of central bank digital currencies (CBDCs).

CBDCs are essentially traditional currencies, but in digital form, issued and managed by a country's central bank. In contrast, cryptocurrencies such as Bitcoin are generated by solving complex mathematical puzzles and are managed by decentralized online communities rather than centralized institutions.

A sharp decline in cash use and competition from alternative currencies such as Facebook's Libra have also prompted central banks around the world to consider issuing their own electronic currencies.

The Riksbank said on its website that paying in electronic kronor will be "as easy as sending a text message".

Sweden is the world’s least cash-reliant country, making it a litmus test for how central banks respond to people using less printed money.

The Swedish central bank said it has not yet made a final decision on whether to issue an electronic Swedish krona. According to previous reports, this pilot project was developed by Accenture Consulting and will simulate the use of the electronic Swedish krona in an "isolated test environment."

Just 1% of Sweden’s gross domestic product came from Swedish banknotes in 2018, compared with 11% in the eurozone, 8% in the United States and 4% in Britain, according to the Riksbank.

Last April, the Swedish central bank asked lawmakers to examine the concept of legal tender and its role as a central bank in the digital economy.

“The public’s cessation of access to any form of central bank money would make it more difficult for the Riksbank to promote a safe and efficient payment system,” the Riksbank said in April last year.

A revision of this role in the payment system could affect individuals who hold funds in accounts at the Riksbank, which would radically change the distinction between central banks and commercial banks.

The Riksbank said the trial will run until February 2021 and will use blockchain technology.