Going Digital in Sweden and Beyond
Last week, Sweden’s central bank (Riksbank), released an update on its e-krona project which said:
“The question of whether Sweden should introduce a state‐issued digital krona is one that will affect the whole of society
“An increasingly digitalised society has led to the use of cash in Sweden declining rapidly and being replaced by various digital payment alternatives.
"Within a few years, we may be close to a situation where cash becomes increasingly marginalised and can no longer function as a generally accepted means of payment.
"an e‐krona, can create increased competition that can generate lower charges, increased stability and a greater variety of payment services.
“Sweden is not alone in analysing the ongoing digitalisation and developments on the payment market. Internationally, there is considerable interest in these issues, which will probably be analysed within the central bank world for many years to come."
Separately, comments from the report “Central Bank Digital Currencies”, by IBM and OMFIF included:
“Although a relatively new popular phenomenon, digital currencies have existed for decades. Virtual in-game currencies are commonplace, as are the use of fiat currencies to purchase them and secondary markets where people trade in-game items for fiat currencies.
“Businesses and merchants began to offer redeemable virtual currencies in the 1980s. Customers used these for purchases and transfers to other consumers, or stored them as credits. In 1989, David Chaum created DigiCash – the world’s first digital currency that was anonymous and could prevent double spending. In 1994, the company put forward the first electronic cash transaction over the internet. Although DigiCash went bust, numerous digital cash and web-based money companies have arisen since then.
“Bitcoin is not a universally accepted means of payment, and so remains unqualified as a medium of exchange. The usability of a cryptocurrency diminishes as it becomes a speculative vehicle with volatile purchasing power. [Central Bank Digital Currencies] CBDCs denominated in an established currency could resolve this problem.
"There is still a long way to go before the technology is mature enough to meet central banks’ expectations for the next generation of real-time gross settlement systems."
Note: OMFIF is a think tank for central bankers.
Successful digital currency solutions will need to:1) be easy to use, 2) be cost-effective to operate, 3) provide institutional-grade performance and 4) integrate with existing payment systems.
Bitcoin has attracted significant media attention, but broad based adoption of digital currencies may come from a new class of solutions.
The increasing use of mobile devices, high performance networks and cloud-based services will be important drivers in the growth of digital services.