Sweden’s central bank has announced the next steps in its plans to phase out physical currency in favour of electronic money.

The Riksbank stated that as the use of cash continues to decline in the country, in the future, cash may be used to such a limited extent that it is difficult to pay with it.

In response, it started a project in the spring of 2017 to examine the scope of issuing a central bank digital currency (CBDC), a so-called ‘e-krona’.

“The next step in the Riksbank's work should be to build an e-krona to learn more and test which solutions are viable and possible to realise,” said Eva Julin, project manager at the Riksbank.

An e-krona could ensure that the general public will still have access to a state-guaranteed means of payment, read a statement, which cautioned that adopting a position on whether Sweden should introduce an e-krona will take time.

A new report has been published, which proposes that the Riksbank:

• Begin to design a technical solution for an e-krona in order to test which solutions are practicable and possible to realise.
• Draw up proposals for legislative amendments needed to clarify the Riksbank's mandate and an e-krona's legal standing.
• Continue investigating the financial aspects of an e-krona.
The report explained that e-krona could either be held in an account at the Riksbank (account-based) or be stored locally on a card or in a mobile phone app (value-based).

Developing one or more possible technical solutions for an e-krona would provide the Riksbank with greater room for manoeuvre and knowledge prior to a decision on whether or not to issue an e-krona, the document added.

“A preliminary technical solution for the e-krona should focus on a value-based e-krona without interest and with traceable transactions,” read the report. “The Riksbank should also continue investigating an account-based e-krona which would require coordination with other authorities.”

At the end of May, officials at the Bank of England said they had made a “material step forward” in addressing one of the major risks preventing central banks issuing their own digital currencies - the possibility of effectively destroying the existing banking sector.

Meanwhile, Norway's central bank is also consulting on the risks and benefits of introducing CBDCs.

“A decline in cash usage has prompted us to think about whether at some future date a number of new attributes that are important for ensuring an efficient and robust payment system and confidence in the monetary system will be needed,” stated Norges Bank governor Oeystein Olsen in a recent working paper.

Analysis from Expert Market in August showed that the UK generated £81.3 trillion in cashless payments in 2016, almost double the amount spent in any other European country.

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