Sweden’s central bank said banks and payment providers should be able to integrate its digital currency into their existing IT systems.
The Riksbank announced this in its latest report on e-krona, which followed a series of tests.
The financial regulator is well into its second year of testing a new digital currency, but so far no firm decision has been made by the government to adopt it.
It recently ended the second phase of the e-krona pilot project which aimed to study and test the technical solution as well as the potential legal framework around e-krona. This phase of the pilot was based on the same technology choices, but with new areas of focus, including integration with existing point-of-sale terminals and with commercial banks‘ internal systems. Other areas of focus during phase two were offline functionality and improving performance and scalability.
With the support of the Swedish bank Handelsbanken and the IT services company Tietoevry, the project examined how banks and other payment service providers could be integrated into an e-krona network.
A statement from the Riksbank said: “Tests have shown, for example, that it is possible to integrate a potential e-krona into the internal systems that banks have today, which would allow their customers to exchange money in their bank account. for e-krona, and vice versa.
The tests revealed that it would be possible to transact using e-krona, even offline, although they added that offline payments would entail certain risks that need to be managed. The project also investigated the legal aspect of the transactions, in particular by questioning the type of asset that an e-krona would be. “The conclusion is that it could be considered an electronic form of cash,” the Riksbank said.
However, he added: “No decision has yet been made on whether to issue an e-krona or what technical solution or legal framework it might be based on.”
The first phase of the pilot project was tested using simulations, paying particular attention to the provision of liquidity through the Riksbank settlement system and the role of participants who distribute e-krona to end users.
The work is now entering phase three, which will study the requirements of a future e-krona, among other issues.
Globally, Sweden is relatively advanced in exploring the potential use of digital currencies by central banks. It is also one of the most advanced countries on the path to potentially becoming a cashless society.
Sweden and fellow Nordic Norway are often cited as the closest countries to becoming cashless, and the Covid-19 pandemic may have accelerated the journey. The Swedish Retail and Wholesale Council has forecast that 50% of its high street shop members do not plan to accept cash as a form of payment after 2025.
The abandonment of cash has only accelerated during the pandemic. Due to the risk of spreading Covid-19 through contact, the use of cash has dropped dramatically around the world wherever there are alternatives. And once people get used to using alternative payment methods like mobile wallets and contactless cards, they’re unlikely to switch back to cash.
In Norway, a survey by central bank Norges Bank found that less than 4% of spending in the country was made in cash in the fall of last year.
The Nordic countries could be the pioneers of new payment methods as well as potential digital currencies. It is often seen as a test bed for new technologies as there is a rich fintech ecosystem in the Nordics, which has grown in part due to the openness of people in the region to new digital payment methods.