The Riksbank is investigating whether it would be possible to issue a digital complement to cash, so-called e-kronas, and whether such a complement could support the Riksbank in the task of promoting a safe and efficient payment system. This is not a unique situation: several times previously, the government has had to reconsider its role on the payment market when this has changed. An e-krona would have the potential to counteract some of the problems that could arise on the payment market in the future when the use of cash is rapidly declining.
An e-krona would give the general public access to a digital complement to cash guaranteed by the state and several payment services suppliers could connect to the e-krona system. Currently the Riksbank only offers participants in RIX digital payments. By functioning independently from the infrastructure used by the commercial bank system, the e-krona system could also make the payment system more robust in the event of disruptions to, for instance, the system for card payments.
Cash usage decreasing
During the 21st century we in Sweden have been able to note that the use of cash has declined, at the same time as card payments and, in recent years, Swish payments have become increasingly common. The proportion of cash payments in the retail sector has fallen from close to 40 per cent in 2010 to about 15 per cent in 2016. Two-thirds of consumers say they can manage without cash and just as many mostly use cards for payments under SEK 100. In the not-too-distant future, Sweden may become a society in which cash is no longer generally accepted. Developments on the Swedish payment market are unique in an international perspective.
Digitalisation trend can have undesired effects
This development is a part of a greater trend towards digitalisation in society and a movement towards a mediation of payments in Sweden that could be entirely driven by private actors and consolidated among a small number of commercial participants, payment services and infrastructures. In the long run, this concentration could restrain competitiveness in the market and make society vulnerable. The development towards an almost cashless society also entail households having little opportunity to save and pay with risk-free central bank money and this can ultimately lead to a decline in the resilience of the payments system. We are also aware that there are certain groups that at present do not have the opportunity to use digital payment solutions, or quite simply prefer cash to other means of payment. For these groups it is important that society can offer alternatives. The Swedish Post and Telecom Authority and County Administrative Boards are responsible for ensuring that the general public's need of basic payment services is met. In a crisis or situation of financial unease, when demand for cash can be assumed to increase, it would take considerable time to get the distribution of cash to different participants to function, even if the Riksbank was ready and prepared for this eventuality. In the event of systemic shocks, there is a risk that there would be no rapidly available free-standing alternative such as cash is at present.
A register-based e-krona that is supplemented with a value-based e-krona
A register-based and a value-based e-krona are presented as two conceivable models for an e-krona. With a register-based e-krona, the balance would be stored in accounts in a central database, while a value-based solution would be more like cash is at present, as the value would be stored locally in an app or on a card. The current assessment is that a simple value-based solution would have a more limited potential for development than a register-based solution, but that it might possibly be introduced more quickly. A register-based solution is deemed to be more complex, but, at the same time, would give greater possibilities to extend the model in stages and make adjustments to future demands. The project proposes a combination of the two models, where a register-based solution is supplemented with a value-based e-krona that is primarily suited to small payments offline. The value-based solution will make the e-krona more accessible to groups that are unable or unwilling to have e-krona accounts and the solution can be further developed to meet special groups' need for basic payment services.
The choice of technology needs to be investigated
Which technology would work best for an e-krona is a matter for further investigation by the project. Both new and tried-and-tested technology could be used, and there could be cooperation with both public authorities and private actors.
Limited effects on monetary policy and financial stability
In a preliminary analysis of the consequences an e-krona, according to the concept in this report, could have for monetary policy, as well as the payment market and financial stability, no major obstacles to the introduction of an e-krona have been identified. We assume that the monetary policy framework will be adapted to a new reality. The Riksbank supplies the volume of banknotes and coins that the general public and the market demands. They can be assumed to determine the supply of e-krona in the same way as they currently determine the supply of banknotes and coins.
The legislation needs to be revised
The questions we raise are so large and so important that we assess that they require thorough deliberations by the legislator. The introduction of e-kronas is not obviously compatible with current legislation on the Riksbank's monetary policy assignment. However, according to a preliminary assessment, an e-krona could be compatible with its statutory assignment of promoting a safe and efficient payment system. It is the opinion of the project that the Sveriges Riksbank Act needs to be adapted if the Riksbank is to issue a digital means of payment. Sveriges Riksbank's mandate to issue an e-krona and the question of whether or not the e-krona should be legal tender are ultimately matters for legislators to decide.
The e-krona concept
The project proposes the following design for an e-krona in the event that the Executive Board of the Riksbank sees a need to introduce digital central bank money made available to the general public:
- The e-krona is primarily intended for smaller payments between consumers, companies and authorities.
- The e-krona constitutes a direct claim on the Riksbank, is specified in Swedish kronor and can be held by the general public, financial institutions and companies. It is accessible in real time, 24 hours a day, seven days a week, 365 days a year.
- The e-krona does not accrue any interest, but should have a built-in function to make it possible to accrue interest at a later point.
- A register-based e-krona is combined with a value-based solution that makes offline payments of small amounts possible and increases their availability for groups that do not want to or cannot have e-krona accounts.
- The Riksbank provides the basic functions for the e-krona, but investigates the possibility of using the existing digital infrastructure and invites external actors to propose how the interaction with end-users should be designed.
This concept is the result of the project's initial preliminary conclusions and may be amended as the work of analysis and inquiry continue and after the project has held a dialogue with interested parties in society.
Discussions with those concerned
The development of the payment market affects the whole of society and the Riksbank hopes that this report will open the way for a broad dialogue with various groups as to how the different questions and problems can be managed. The next stage in the project to investigate the conditions for an e-krona is to gather in views and questions from those involved. The Riksbank has not yet taken any decision on issuing an e-krona.