Banks should be able to integrate e-krona into existing systems, says Swedish regulator

Sweden’s central bank has said banks and payments providers should be able to integrate its digital currency into their existing IT systems.

The Riksbank announced this in its latest report on the e-krona, which followed a round of tests.

The finance 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 set out to investigate and test the technical solution as well as potential legal framework around the e-krona. This phase of the pilot was based on the same technological choices, but with new areas of focus – including integration with existing point-of-sale terminals and with the internal systems of commercial banks. Other areas of focus during phase two were offline functionality and improved performance and scalability.

With support from Swedish bank Handelsbanken and IT services company Tietoevry, the project looked at how banks and other payment service providers could be integrated into an e-krona network.

A Riksbank statement said: “The tests have shown, for instance, that it is possible to integrate a potential e-krona into the internal systems the banks have today, and this would make it possible for their customers to exchange money in their bank account for e-krona, and vice versa.”

The tests revealed it would be possible to make transactions using e-krona, even offline, although it added that offline payments would entail some risks that need to be managed. The project has also investigated the legal side of the transactions, including questioning what type of asset an e-krona would be. “The conclusion is that it could be regarded as an electronic form of cash,” said Riksbank.

However, it added: “No decision has yet been taken on whether to issue an e-krona or on what technical solution or legal framework it might be based.”

The first phase of the pilot was tested using simulations, with special attention paid to liquidity supply via the Riksbank settlement system and the role of the participants that distribute e-krona to end-users.

The work is now entering into phase three, which will investigate the requirements made of a future e-krona, among other issues.

On a global scale, Sweden is relatively advanced in investigating the potential use of digital currencies by central banks. It is also one of the countries furthest along the journey to potentially becoming a cashless society.

Sweden and fellow Nordic country Norway are often cited as the countries closest to becoming cashless, and the Covid-19 pandemic might have accelerated the journey. The Swedish Retail and Wholesale Council has forecast that 50% of its high street store members do not plan to accept cash as a method of payment after 2025.

The move away from cash has only accelerated during the pandemic. Due to the risk of spreading Covid-19 through contact, the use of cash has reduced dramatically across the world wherever there are alternatives. And once people get used to using alternative payment methods such as mobile wallets and contactless cards, they are unlikely to go back to cash.

In Norway, a survey by central bank Norges Bank revealed that less than 4% of spending in the country was made using cash in autumn last year.

The Nordic countries could pioneer new payment methods as well as potential digital currencies. It is often seen as a testbed for new technologies as there is a rich fintech ecosystem in the Nordics, which has developed partly because of the openness of people in the region to new digital payment methods.