109 countries and central banks worldwide are exploring the potential of launching a digital version of its currency. The Bahamas have launched their Sand Dollar and Nigeria the ENaira. India says it will launch the digital rupee in 2023. China is in the forefront of launching its digital yuan and will broaden its testing to several regions in 2023. USA, Canada, UK are in different stages of the development of a CBDC (central bank digital currency). But what about Sweden?
First, what is a CBDC? Simply put, a CBDC is a digital version of a country’s currency. It is not the same as a cryptocurrency. A CBDC is backed by the credit of the government in the same way as a regular currency and a cryptocurrency may be pegged to an asset or fiat currency. Another major difference between a CBDC and a cryptocurrency such as Bitcoin is the fact that a CBDC is controlled by the government, but Bitcoin is decentralized. Wait!
Why is it important to consider centralization or decentralization when we talk about digital currencies?
Well, one of the biggest reasons that China is headfirst in fully launching its digital yuan is that they aim to limit the power and market share of the private sector. The powerful Chinese private financial technology sector with actors like Alibaba and Wechat control a significant part of domestic transaction. It is difficult for the Chinese government to fully implement the digital yuan since it is very easy for the public to pay for services through these private entities. The government need to create digital wallets for the population and lack of privacy is a reason why the Chinese population is hesitant to start using the digital yuan.
Not even I as a Swedish citizen would blindly trust the Swedish government in providing a digital wallet to store my E-krona. With a government-controlled wallet every purchase could be tracked by the government. I do not think that the current government of Sweden is interested in me buying a bottle of wine at Systembolaget, but at what point is my economic life a personal matter?
Anyhow, Sweden will be cashless. Sooner than we might think. Cash is not king anymore. Only about 18 percent of all consumer transaction are in cash. The digital e-krona is the future of Swedish money. According to the Swedish Riksbank the E-krona pilot initiative is running and has gone through various phases. The bank Handelsbanken and the technology company Accenture and key players along with the Swedish Riksbank have actively tested the E-krona in a sort of a beta test. The result so far indicate that the Riksbank still need to know the effects an E-krona may have on the Swedish economy. Further research is needed and various technological issues and question appeared in the test period that are also common in the crypto industry. How will people store their E-krona? What digital system will be used for safe and trustworthy transactions?
The government will never use an existing blockchain to implement the Swedish E-krona because it needs to have full control of the currency. Using an existing crypto stable coin is off the table. The Swedish Riksbank has used a blockchain technology on a platform called R3 Corda platform when testing its CBDS but the result was not satisfactory and an alternative technological method need to be found in the future.
It is not entirely easy to launch the E-krona as some groups in society may have problems with its technical use. A range of technological and social issues need to be considered. I think that the digitalization of the Swedish currency cannot be stopped but needs to follow the guiding light of the values of society. The E-krona will not be something that we as citizens vote on. It will be implemented in stages whilst the current cash system is incrementally dismantled. The E-krona will likely not see the light of day until 2030.