Sweden Mulls Testing Central Bank Digital Currency Project E-Krona

Sweden’s central bank, the Riksbank, has moved its central bank digital currency (CBDC) project called e-krona a step forward by proposing a test aiming to choose the appropriate technology as well as to see how e-krona can fulfill several parameters including scalability and security. According to the second e-krona report, which was released on Friday, the trial should take place in 2019-2021.

The paper noted that the test’s proposal does not mean that Riksbank has decided to introduce CBDC, but shows the institution’s response to financial developments like the reduced use of cash. The CBDC trial should analyze various technical solutions including blockchain and other distributed ledger technology (DLT) systems. Riksbank recommended that e-krona combine traditional and new technologies as the bank has concerns about using only DLT. The institution plans to conduct the experiment in a limited environment and with several selected suppliers.

“Regardless of the choice of technology, an e‐krona should be able to interact with DLT solutions. An important conclusion from the dialogue with technology suppliers is that traditional technology can currently be combined with DLT, which means that payment service providers should be able to base their services on different technologies, DLT or others, regardless of what e‐krona platform technology the Riksbank chooses,” C-bank said in the document.

The Riksbank’s paper outlined several main functions of the CBDC that the test should also examine, including the support of a comprehensive range of services as well as e-identification solutions. The e-krona’s capacity to handle a large number of payments and increase the robustness of the market would also be in focus. Moreover, the central bank wants to see how CBDC can guarantee the security and reliability needed to maintain consumer confidence and trust in the financial system.

“The e‐krona system must also guarantee user integrity by offering the option of implementing a payment without anyone else apart from the payer and the payee being able to see it (third‐party transparency). On the other hand, the system should make it possible to trace transactions, to prevent fraud and money laundering,” Riksbank explained in the report.

According to the e-krona test’s schedule, next year the central bank will analyze the need for legislative amendments for issuing an account-based CBDC as well as will work to secure support for the technical trial and draft the e-krona’s test framework. Then, Riksbank should trial the CBDC in late 2019 or in 2020 and based on the results, in the next two years, the local parliament should adopt the needed legislation for a possible CBDC implementation.