Sweden’s Riksbank has looked into the viability of central bank digital currencies for its local market
In the updated economic review dated June 18, the world’s oldest central bank, Sweden’s Riksbank, described a digital version of the Swedish krona (e-krona) – central bank digital currencies – as well as outline how different models will fit its policy goals.
World’s oldest central bank reviews possible central bank digital currencies with mixed results
In that context, the four models under review include:
- Centralized e-krona provision without intermediaries
- The centralized model with intermediaries
- Decentralized solutions with intermediaries
- Synthetic e-krona
All models will have advantages and disadvantages, but some seem better at meeting the current needs of the Swedish payment market than other models.
The report stated:
“A centralized e-krona provision without intermediaries would see the bank take responsibility for the whole distribution chain for the e-krona. This scheme would mean a wholly new role for Riksbank, similar to how large retail banks operate.”
Riksbank stated that it would cause high costs for customer support and staffing functions for millions of potential users while also playing a role as a competitor to private payment services at the retail level, thus indirectly creating a market monopoly.
High technology is not the deciding factor in this model. Both e-krona and regular account tokens are possible. The token-based model is where each digital e-krona is uniquely identifiable and will essentially copy the cash distribution model but in digital format, evaluate readings. The difference between e-krona and token-based or account-based has nothing to do with the potential significance of e-krona on the monetary system.
As the way the above-centralized model operates, in a decentralized environment, all intermediaries related to e-krona will have a direct contractual relationship with the consumer.
The report stated:
“This setup is simply a decentralized database of all e-kronor in circulation at any given moment, where the Riksbank verifies all transactions before completion.”
As such, Riksbank will need to provide a backup plan if one or more intermediaries fail, then the bank will need to be able to provide a large number of e-krona customers. This is a little different from the centralized model where Riksbank does not have contractual agreements with consumers and anti-money laundering (AML) policies, know your customers (KYC) and anti-terrorism (CTF) policies. ) will be the sole responsibility of the intermediaries.
The final model presented in the CBDC’s economic overview is the synthetic e-krona. The article explains that in addition to allowing multiple organizations access to a total real-time payment system (RTGS), this model includes most of the new laws that will require banks (and other organizations). Set up separate accounts.
What makes e-krona compelling is its limited scale compared to other models we have described. It will not involve significant investments in infrastructure, and Riksbank may relinquish all responsibility for KYC, ALM, etc.
“Both the centralized and decentralized model featuring intermediaries, as well as the centralized e-krona provision without intermediaries, would incur substantial change and cost. A synthetic digital version of the Swedish krona could prove to be viable but may not even classify as a CBDC.”
However, many models will need to be expanded based on multiple dimensions in future studies.
The article is referenced from Coindek.
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