Riksbank assesses the viability of central bank digital currencies

The central bank of Sweden’s study of central bank digital currencies (CBDCs) have yielded mixed results

The central bank of Sweden, Riksbank, has analysed the viability of central bank digital currencies (CBDCs) for the local market and declared mixed results.

Through a 96-page economic review, the world’s oldest central bank explores four models for implementing a digital version of the Swedish krona, which they have dubbed as the “e-krona.” The bank also looked through how well the different models would fit its policy goals.

The policy goals outlined include the following:

• Fostering a stable store of value and unit of account
• Being a lender of last resort (LOLR)
• Providing a secure means of payment and settlement
• Providing tools for preserving financial stability

The four models under review in the paper include these scenarios:

• Centralized e-krona provision without intermediaries
• Centralized e-krona with intermediaries
• Decentralized solutions with intermediaries
• Synthetic e-krona

The review comments that while all models have their own advantages and disadvantages, “some seem better at fulfilling the current needs of the Swedish payment market than others.”

In the first model, a centralized e-krona provision without intermediaries would mean that the bank would take full responsibility for the entire distribution chain of the CBDC. The review acknowledges that this would put Riksbank in a completely different role, operating in a way similar to that of large retail banks.

In the second scenario, the model is similar to the current local financial infrastructure in the sense that it is based on a partnership between the central bank and private service providers. Riksbank would remain a prominent actor located at the wholesale level of the payment market. However, this would mean that the bank does not play an operational role in the distribution chain.

If the CBDC were to take the form of a decentralized solution with intermediaries, then all the intermediaries that are involved in the e-krona would possess a direct contractual relationship with the customer.

Riksbank would need to have a contingency plan in place if one or more intermediaries were to fail.

The final model would allow more institutions access to real-time gross settlement (RTGS) systems and out of the four options, is what most closely resembles the status quo. The role of the central bank here would be to mediate the payment system, with the private market acting as a secondary layer that is serving customers.

However, while the synthetic digital version of the Swedish krona is viable, it may not classify as a CBDC.