Weighty decisions on e-kronor
Sweden's electronic money questions
by Cecilia Skingsley in Stockholm
Thu 31 Aug 2017
A natural question for a central bank is whether it should issue an electronic means of payment in the same way that it now issues cash. Just as technological advances allowed printed notes to complement minted coins, so electronic payments could complement physical cash. The question is particularly relevant for Sweden's central bank because the use of cash in the country is declining significantly.
Money, in both cash and electronic form, fulfils three functions. First, it is a means of payment, in that when it is handed over, a monetary value is transferred to the recipient. Second, it forms an arithmetical unit that allows everyone to measure the value of goods. This makes it easier to compare the price of different goods. Third, money is a store of value, which means that we can save by holding it in bank accounts.
Money is taken for granted, but for it to work people must trust that it will retain its value over time, and that they will be able to use it tomorrow. Otherwise, citizens will not want to accept cash as payment, and will try to get rid of the cash they have as quickly as possible. Sweden has long seen a decline in the use of cash.
Electronic money no substitute for cash
The Sveriges Riksbank believes that the public and companies will continue to need access to central bank money. It is considering meeting this need by supplying the money in electronic form as a complement to physical notes and coins. If the bank decides to issue e-kronor, it's important to emphasise that they would not be to replace cash. The bank will continue issuing banknotes and coins, as it has a legal obligation to do so. A central condition is that the Swedish payment system will continue to be safe and efficient.
The bank is at present investigating under what circumstances it might issue e-kronor. It first needs to identify which technologies can be used. Then research has to be carried out into the potential effects on the bank, the payment market, monetary policy and financial stability.
The final area concerns legal issues. These centre on what flexibility the bank's mandate allows it and how different laws would affect an e-krona system. The project will also examine integrity issues and how e-kronor can be made available to the public. A report is expected in late 2019, which should help the bank decide whether it should issue e-kronor.
Cecilia Skingsley is Deputy Governor at the Sveriges Riksbank.
This article appears in OMFIF's fourth annual Global Public Investor publication. Order your copy of GPI 2017 to receive on-demand access to the world's largest ranking of Global Public Investors.
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