Sweden is worried about the declining use of cash in the country, so it is looking into an alternative: a digital e-krona that will work on a mobile app and function similarly to cash.
In the latest move toward that end, the country’s central bank—Riksbank—is conducting a pilot project with consulting giant Accenture with the goal of finalizing a technical solution for a digital coin. As detailed in a press release Thursday, the project will run on a blockchain, or digital ledger technology.
The objective is to create a digital krona that is “simple and user-friendly,” and will work as a complement to cash, the bank said. In the test environment, simulated users will be able to hold e-krona in a digital wallet, and make payments, deposits, and withdrawals via a mobile app. They will also be able to make payments via wearables, such as smart watches and cards, the bank said.
Though it has been working on the problem since spring 2017, Riksbank hasn’t committed to issuing an e-krona, or what is more widely termed as a central bank digital currency, just yet. It is still testing the waters to see if the solution is feasible.
The bank initially partnered with Accenture for the project in December, after a public procurement process. The current contract will run till the end of February 2021, but could continue for as long as seven years, depending on how things develop.
In an earlier report in September 2017, Riksbank called blockchain an “inefficient technology” for a digital currency. Nonetheless, in a follow up 2018 report, the bank switched gears in stating that “an e-krona should be able to interact with DLT solutions.”
Interestingly, the Digital Dollar Project, a nonprofit that is researching the potential of tokenizing the U.S. dollar, has also teamed with Accenture. The project is led by Chris Giancarlo, the former chair of the Commodity Futures Trading Commission.
Sweden’s cash problem
Sweden has been on the vanguard of doing away with cash. It is one of the pockets of places around the world where people rely mainly on electronic forms of payment. But critics have argued the country was moving too fast in eroding its cash infrastructure. In 2018, a nationwide survey found only 17% of Swedes remembered using cash for a “recent purchase.”
When merchants stop accepting cash, that can create problems for a country’s most vulnerable—the poor, the elderly, and those living in rural areas where cell coverage is scant. There’s also a question of what happens in an emergency when a payment system goes down? How will people pay for things if they don’t have cash on-hand or when point-of-sale systems aren’t set up to receive cash?
Riksbank, which largely supports the transformation of the country’s payment system, has also argued that going completely cashless can be risky. “Cash has so far been the only possibility for the general public to hold and pay with central bank-issued money,” it said in a statement.
The bank claims that an e-krona would offer continued access to central bank money. And it would reduce the risk of the krona’s position being weakened by private currency alternatives, suggesting a concern about competition from Facebook’s planned Libra project, or similar initiatives.
An e-krona would also contribute to a payments market with continued competition, innovation and where the integrity of transaction data is safeguarded. In short, “It would also make society less vulnerable in the event of problems with the existing payment system,” the bank said.