What is happening with the Riksbank’s e-krona?
When the Riksbank launched its e-krona investigation back in 2016 it aroused a great deal of interest, both in Sweden and abroad. The work then quietly continued for a few years. A first interim report was published in the autumn of 2017, followed by a second in autumn 2018.
Following that quiet start, the work has taken a somewhat more dramatic turn in the past few months. In December 2018 the Riksbank’s Executive Board decided to proceed with an e-krona pilot in order to develop and test a technical solution for an e-krona.
However, when the comments on the second interim report started to arrive in late January, they contained strong criticism. This related in part to the investigation’s analysis, but above all included more fundamental criticism of the Riksbank’s approach of independently pursuing an issue with implications far beyond the Riksbank’s areas of responsibility.
In February the Swedish Parliament’s Committee on Finance met the representatives of the Riksbank to gather more information on its e‑krona project. However, we do not know what was discussed by the Riksbank’s representatives and the politicians on the committee because the meeting was not public. Nevertheless, following the discussions the Moderate Party committee chairperson and the Social Democratic Party deputy chairperson expressed a need for the Swedish government and the parliament to get a broader grasp of the issue.
What, then, have the consultative bodies reacted to? The most clearly expressed criticism against the approach of the Riksbank’s investigation of e-krona came from Finansinspektionen, Sweden’s financial supervisory authority. The authority felt that the analysis should have been based on an unbiased investigation of how to solve the potential problems that might arise if the marginalisation of cash continues, instead of focusing solely on the e-krona as a potential solution. Many other respondents, including the Swedish Bankers’ Association, are demanding a broader approach to take into account alternatives to e-krona.
Other criticism focuses on the fact that it is not appropriate for the Riksbank to on its own investigate e-krona. Issues such as crisis preparedness affect many players, and questions relating to financial stability are handled as much by Finansinspektionen as by the Riksbank. It seems that politicians have been receptive to this criticism.
In addition to the more fundamental criticism, the consultative bodies also brought up a number of other issues. A selection of these is listed below.
Perhaps not entirely unexpectedly, the Confederation of Swedish Enterprise is sceptical about new state interventions in the economy and believes that private business can manage the issue more effectively than the Riksbank. They write that “if the state, with the help of private suppliers, can create a more sustainable system, then the banks should also be able to do so. If the banks are unwilling to absorb the cost this would involve, then either the state could pay them for it or it could pursue such measures with the help of regulations. A solution of that nature would probably be more cost-effective…”.
A number of responses, such as those from the County Administrative Board of Dalarna and the Swedish Post and Telecom Authority, praise the Riksbank for its ambition to make it easier for people that, for various reasons, find using digital payment service solutions difficult.
However, other respondents feel that while the ambition itself is certainly praiseworthy, there are questions as to whether the e-krona could truly achieve its goal. The Swedish National Debt Office writes that “to the extent that the technology represents an obstacle, the Riksbank’s technical solutions will probably be no more appealing to those people than any offered by other players”, while Sparbankernas Riksförbund, the national association of savings banks, writes that they “...struggle to see in what way an e-krona could offer scope for change for the groups in question. We even assume that for some a new payment system would represent a further digital complication.”
The Swedish Bankers’ Association wonders how the e-krona could make it easier for digital novices, persons with seriously impaired vision, persons with neurodevelopmental disorders, etc.
Another issue raised by many respondents is the robustness of the payment system in times of crisis and war. Several respondents note that increased robustness requires some form of parallelism to the existing payment system. Sparbankernas Riksförbund requests a description of the special arrangements that would be made to ensure that an e-krona would not fail when other payment systems fail.
The Swedish Bankers’ Association feels that the most important socioeconomic benefit of an e-krona would be if it increases the robustness of the payment system. However, it also points out that this requires investment in a parallel payment infrastructure, and it believes that the costs for that would be significant. Therefore, an assessment of the balance between investment costs and robustness needs to be carried out.
In this respect it can be noted that the focus of the e‑krona pilot does not seem to be on building a parallel infrastructure. It may therefore be reasonable to change the focus of the pilot, because an e-krona that does not increase the robustness of the payment system would appear to be meaningless.
The Swedish Competition Authority requests “a more in-depth analysis and description of how an e-krona would contribute in practice to increased competition, a greater degree of innovation and lower costs as highlighted in the report.” The Swedish Bankers’ Association and the Confederation of Swedish Enterprise feel that competition is currently essentially between different digital payment solutions, not between cash and digital payment solutions. The Swedish National Debt Office writes that “of course it cannot be ruled out, but the notion that cash upholds competition in the payment market seems far-fetched.”
A statutory requirement to accept e-krona received the support of the Swedish Consumer Agency. Those who would be subject to such a requirement were less keen. The Swedish Association of Local Authorities and Regions points out that regions are the only bodies obliged to accept cash, and this has resulted in increased costs. The Swedish Trade Federation believes that the costs of integrating an e-krona into the trade and commerce sector’s checkout systems should be investigated, and points out, for safety’s sake, that the retail trade is a low-margin industry and that “keeping costs down is of the highest priority for every retailer”. The Confederation of Swedish Enterprise feels that a statutory requirement would give an e-krona a competitive advantage that could disadvantage more efficient private payment solutions.
Both the Swedish National Debt Office and Finansinspektionen can see risks associated with the financial stability of the e-krona. The Swedish National Debt Office writes that “there are costs associated with keeping large quantities of cash. However, the costs of keeping large quantities of e-krona would be very low. The threshold for moving money would thus be significantly lower. The Swedish National Debt Office’s view is that this changes the rules of play on the financial markets, which in times of financial uncertainty could create serious risks and have a negative impact on financial stability.”
The Swedish Bankers’ Association and Finansinspektionen wonder how the Riksbank would invest the funds it receives if it issues e-krona. Finansinspektionen writes that “the funds that the public holds in e-krona accounts will also need to be invested in suitable assets. The Riksbank would therefore also have to accept responsibility for issuing credit, either through lending to the public or by the Riksbank issuing loans to banks to replace the funds transferred from accounts held at the bank to e-krona accounts.”
A few respondents have opinions on the technology behind e-krona. The Swedish Fintech Association emphasises that the research into blockchains is moving at an incredibly fast pace and it believes that Riksbank’s conclusion that blockchain technology would be unsuitable for an e-krona solution for technical reasons is based on outdated research.
In summary, this round of consultations has shown that the e-krona opens up a number of questions that lie outside the areas that normally concern the Riksbank. It would therefore be logical for principal responsibility for the e-krona project to be moved away from the Riksbank. It is praiseworthy that the Riksbank has worked in such an open manner and has invited discussions on the subject of e-krona. The most valuable aspect of the Riksbank’s e‑krona project is that it has focused on the question of the robustness of the payment system in a crisis, and that further analysis of this issue would be welcomed.