The Strategist

Sweden to introduce a national cryptocurrency

11/17/2016 - 15:28

The Bank of Sweden is considering introduction of a new national currency called e-krona, writes Business Insider. Deputy Governor Cecilia Skingsley told to Financial Times that the Central Bank of Sweden is forced to make such a step catastrophic due to steep downfall of use of cash.

Florian Prischl
Florian Prischl
Since 2009, number of coins and banknotes in circulation fell by 40% while online purchases and bank cards payments have only been growing. In this regard, the Central Bank of Sweden was puzzled asking what alternatives for money issuance could be used. Skingsley says: "This is a revolution comparable to advent of paper banknotes 300 years ago." 

At the moment, banks provide access to electronic money via mediation of the Central Bank. If Sweden introduces e-krona, it will be the world’s first precedent of direct access to virtual money. By the way, Riskbank became the first bank in the world to issue paper money in 1660.

Swedish Central Bank also needs to solve other issues. Do private individuals need to have e-krona accounts in the Riksbank? Will e-krona transaction be monitored, as opposed to cash transactions? And what about charging interest on the virtual money? Skingsley says she is in favor of maximal resemblance of regular banknotes and coins. However, she adds that the state is not interested in helping cybercriminals, so perhaps e-krona transactions will somehow be tracked.

Sweden has long been discussing the idea of giving up cash. As noted by The New Yorker, number of cash in circulation has been declining for a long time in the country. The fall in popularity sped up (from 106 billion kroner in 2009 to 77 billion kroner in 2015) particularly fast after a daring robbery in Stockholm on 23 September 2009. Seven people were arrested later, yet almost all stolen money (about $ 6.5 million) were lost. Share of cash in circulation in Sweden now is less than 2% of GDP.

Not only Sweden is considering introduction of e-money. Earlier, the UK Home Office said that the government is pondering a similar question. According to Skingsley, the Bank of Sweden’s project is now at an early stage of consultations and discussions of ideas. Experts are contemplating aspects transition to e-krona, transparency of transactions, delivery methods and interest rate for committed transactions. She says that e-krona will complement classical notes and coins, but is not meant to replace them.

Bitcoin, the most famous cryptocurrency in the world, is built on a database protocol called blockchain. The technology has already inspired dozens of commercial banks around the world to develop independent projects.

Four leading bank - UBS, Deutsche Bank, Santander and BNY Mellon - are already developing a new virtual currency based on the blockchain technology. They want it to be a benchmark for clearing and settlement of financial transactions. UBS calls its ‘utility settlement coin’, and intends to use it to perform calculations on transactions via central banks. The banks expect that its commercial use will begin in early 2018. In addition, Citigroup and Goldman Sachs are also working on an alternative cryptocurrency (Citicoin and SETLcoin).