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Sweden pilots CBDC ahead of Europe

Photo of: Joseph Stone
by Joseph Stone

Sweden is finalizing the first phase of its central bank currency, the e-krona. However, the Riksbank is still in the pilot stage and feels it is necessary to continue its technological experimentation.

European central banks are struggling to agree on the value of issuing a digital euro. ECB President Christine Lagarde acknowledged that it would take several more years.

But if Europe remains at the stage of consultation, Sweden continues its experiments. And its central bank, the Riksbank, has just published the conclusions of phase 1 of its pilot. Why such a difference in terms of progress?

Probably because the use of cash in Sweden is declining. And part of the reason for this decline is technological developments, which have led to several digital payment services. However, the Riksbank identifies potential risks arising from the decline of cash.

The e-krona could address this by providing “a digital complement to cash. In this first step, Sweden simulated the operation of a CBDC on a Corda blockchain.

Conclusion: “The solution tested in the first phase of the e-krona pilot project has met the performance requirements,” says the central bank. However, it is still too early to conclude whether or not this model is suitable.

The Riksbank points out that the experimentation took place “in a limited test environment. Furthermore, “the ability of the new technology to handle large-scale retail payments needs to be further investigated and tested.

There are still a number of issues that need to be addressed, including offline payments. This functionality is essential, but has not yet been tested. In addition, there are several options as to how to store the keys and tokens (locally or not).

However, this is not the only aspect of a CBDC that remains to be clarified. Such a digital currency also raises questions about data confidentiality and banking secrecy.

During a transaction, data relating to the history of the transactions are transferred. This data concerns other customers and other participants.

“The Riksbank is currently analyzing to what extent the information stored in the transaction history can be considered as bank secrecy information and whether it includes personal data. “

So the work continues. But finalizing a technical solution will not necessarily mean issuing a CBDC. The Riksbank believes that a new legal framework may be required before any use is made of it. The pilots will therefore continue until 2026.