Is e-Krona feasible? Swedish central bank’s cryptocurrency perspectives

Despite the fact that some criticism and scepticism over cryptocurrencies, some liberal central banks across the globe have been constructive as to they should offer alternative variants of digital money or not.

Well, the stimulus behind such sentiment is the robust demand for cryptocurrencies that points to a real need for digital currencies, especially as some economies such as Sweden are whose economy is circulated by very less amount of liquid cash, which is substituted with electronic money. 

The Bank of Sweden has been observing the declining circulation of cash, as a result, foresees the risk of concentration in the payments market and intends to issue its own digital currency that would be a way to counteract the emergence of oligopolies or even monopolies in the payments market. Another option would be to rein in any concentration trends through regulation.

Ever since their sharp price increases in 2017, cryptocurrencies such as Bitcoin have been growing in popularity and attracting a great deal of attention. Central banks have been observing them for years. The Bank of Sweden is even examining whether it would be useful to introduce an

‘e-krona’ as a digital cash substitute. It would differ from Bitcoin in several ways, however. Its quantity would not be limited and it would not have the peer-to-peer characteristic either. Instead, ‘e-krona’ users would be able to keep the new digital currency units in accounts with the Bank of Sweden itself. 

But the possibility for everyone to maintain accounts with the central bank would have real consequences for commercial banks. Their deposits and, consequently, their overall business would probably shrink substantially. 

Furthermore, the fi- at money generated by the commercial banks would also de- crease as a result. Central banks would have to throw themselves into the breach and possibly have to take even more risky securities into their balance sheets than before, which could lead to loss of faith in the central bank etc. All of this makes it unlikely that central banks will issue virtual currencies of their own in the foreseeable future. The consequences for the commercial banks and the central banks them- selves would be too far-reaching. 

At the same time, it is hardly conceivable that private crypto- currencies such as Bitcoin could establish themselves as a general payment instrument, since their design prevents them from fulfilling the money functions. And if they were structured differently (namely, not as an object of speculation), they would probably be less sought-after, especially since they do not represent a claim against anyone. Courtesy: kfw research

Currency Strength Index: FxWirePro's hourly BTC spot index is inching towards -127 levels (which is bearish), while hourly USD spot index was at 37 (mildly bullish) while articulating (at 09:07 GMT). 

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