Sweden Marching Forward with eKrona Initiatives, Other Central Banks Take Note

Sweden’s central bank, Riksbank, is all set to complete the second phase of testing of its proposed digital currency.

20:26 07 March 2022

The eKrona aims to put digital currencies issued by central banks in focus.

Few years ago, Sweden set out on a trailblazing path when it proposed a new Central Bank Digital Currency (CBDC) in response to a rapidly evolving situation where the use of physical cash started shrinking in its economy.

The Scandinavian nation, boasting one of the highest rates of digital payments in Europe, made a bold move announcing its transition to a digital currency, keeping in view the shortage in cash and the convenience offered by the digital iteration of the local currency Krona.

Leading by example, the Swedish central bank Riksbank pushed ahead with its plan, roping in several banks to figure out the use cases and the practical challenges of launching and governing eKrona- its very own digital currency.

eKrona Initiatives Gathering Steam

Paving a new way, Riksbank stated it was prepared to move forward with its eKrona initiatives and committed to carrying out multiple pilot projects. The Swedish central bank collaborated with Accenture to explore the use of eKrona as digital complement to cash and investigate concerns related to regulation etc. It set up a dedicated platform running on Blockchain with a separate isolated environment to test the concept thoroughly.

The first phase of testing involved a lot of simulation, with a lot of emphasis on the liquidity supply that the settlement system of the central bank made available. Much attention was also given to the role of participants in the block-chain based distribution network through which eKrona would flow to end-users. The second phase of the pilot testing veered into a whole new territory, with key areas of focus being integration with internal systems of participant banks and with point of sale (POS) terminals, offline functionality and enhanced performance and scalability.

With the first phase of eKrona pilot testing over and the second one scheduled to be completed sometime next year, the Riksbank, the world’s oldest central bank, is now on course but it has stated it might need more time until the end of 2026 at least to continue working and come up with a much optimized version of the digital currency. Although things are moving along in the right direction, the adoption of eKrona as digital currency rests completely on the formal inquiry by the Swedish parliament and its findings and recommendations.

eKrona: A Digital Complement to Cash, But Still Not Crypto Asset

Little has been announced on what the underlying technology would look like, but Riksbank has made clear that eKrona is anything but a crypto asset. It differs from cryptocurrencies in that its scope includes an issuer of currency, a trusted actor, and a state guaranteeing the specified value of the means of payment.

That being said, it’s quite baffling to find reason with the central bank’s decision to base the pilot projects on blockchain technology with a distributed network where the currency is represented by tokens-- a setup synonymous with cryptocurrencies.

According to the Swedish central bank, eKrona is a far cry from any crypto asset. But it takes after a few key characteristics from the crypto family. Listed below are some key crypto-modeled aspects and distinct characteristics of eKrona which we think are worth noting.

• The amount of eKrona in circulation will always stay the same.
  
  
• The Swedish currency will always have the same value, whether it is physical cash or in its electronic form.
  
  
• Paying with the eKrona requires one to establish communication with the blockchain-based network.
  
  
• Incorporating the same distributed ledger model as cryptocurrencies, the eKrona network includes several nodes, which are meant to authenticity by vetting the transaction history and ensuring it can be traced back to the issuer, which is the Riksbank. These nodes also take over control of the network when the central node ceases to work.
  
  
• Sitting at the origin of the chain of distribution, Riksbank sends the currency to other banks in the network, which, in turn, distribute it to the digital wallets of end users via a proper payment instrument, usually a card or a mobile app.
  
  
• Unlike the existing digital equivalent of money, such as the money in bank accounts, eKrona can be stored locally on the digital wallet managed by the end-user. And, the best part is, the money in the digital wallet can be transferred through a card or a mobile app, even without any bank getting involved in the process.
  
  

Other Central Banks are Starting to Take Note

Digital currencies offer huge convenience and will make using cash redundant in the years to come, forcing central banks to seriously consider building for the future. Another major cause of concern for banks is the rising demand for cryptocurrencies such as Bitcoin, Ethereum--despite them being highly unregulated and their value as a medium of exchange is not as compelling as the CBDCs. Besides, the broader class of cryptocurrencies are highly volatile except stablecoins which derive their stability from the stable fiat currencies like US dollar, Euro etc that they’re linked to. Taking all of this into consideration, several central banks the world over have finally come around to understanding that a future without digital currencies is hard to envisage and that they would do well to launch one of their own.

And the digital revolution is well and truly underway the world over, with several countries slowly opening up to the concept of having their own CBDC.

But the Scandinavian nation takes home the credit for being the torchbearer. Thanks to its pioneering move, Sweden now finds itself in some great company in the form of China, which rolled out digital Yuan as its own CBDC. With digital payment solutions fast replacing the need for dealing physical cash, the communist nation saw fit to launch its own digital Yuan for eliminating the threat posed by stern competition that it faced from two low-cost private digital payment providers in Alibaba’s Alipay and Tencent’s WeChat Pay. Pleased with the outcomes of the pilot projects in Shenzhen and Suzhou, the government shifted its focus to the capital city where it announced it’d shortlist 50000 from a pool of applicants and give them $30 or 200 yuan each in the digital currency.

The European Central Bank followed its lead and briefly flirted with the idea of rolling out a digital euro, which it said would be an electronic form of central bank money accessible to both the public and the institutions. While small countries such as the Bahamas, which launched its digital CBDC Sand Dollar, are also in the running, central banks of some of the developed nations are in absolutely no hurry whatsoever to get their digital initiatives off the ground, like the U.S Federal reserve to name one. Although seriously considering the prospect of having a digital currency of their own, they are still a bit reluctant to get rid of their wait-and-see approach and buy into the cashless society completely. But they can’t afford to be so for long. That’s for sure.

The CBDC landscape may be sparsely populated now but it won’t be long before the big nations pull their socks up and kick off their own digital initiatives in full swing.