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MONEY

What you need to know about Sweden’s plans for a digital currency

Sweden has taken one step closer towards its own digital currency – the “e-krona”.

Published: 12 April 2021 07:41 CEST
A woman rejecting cash.
A digital currency is not meant to replace cash in Sweden. Photo: Fredrik Sandberg/TT

Plans to launch Sweden’s own digital currency, which have been in the pipeline since 2016, recently passed the first pilot stage, the country’s Central Bank (The Riksbank) announced in a press release.

So why is Sweden doing this?

Cash is dying a slow death in Sweden, with alternative methods of payment commonplace. The number of notes and coins in circulation has reduced by 40 percent since 2009, while popular smartphone apps like Swish allow electronic payments to be made almost as quickly as handing over physical money. Swedes are also among the world’s biggest card users.

“Sweden is noticeably further ahead than the UK, mainland Europe and the US, which is a long way behind in this trend. Because of how technologically developed it is, you see a lot of new interesting things in economics quite a while before you see it elsewhere,” HSBC global economist James Pomeroy told The Local back in 2018.

But what does a cashless society truly mean?

Sweden has previously been predicted to transform into a cashless society by 2030 with 80 percent of retail payments already made by card.

Concerns have been raised, including by the Riksbank, about how the cashless society affect certain groups, for example international residents who can’t sign up for certain digital payment methods without a Swedish bank account or personnummer, and the elderly.

So although physical payments are declining, the Riksbank wants the e-krona to be seen as a complement to cash.

The piloted digital currency also has similarities to cash. E-kronor are uniquely identifiable and can only be created by the Riksbank, similar to actual physical money.

How exactly would an e-krona work?

The e-krona used in the Riksbank’s pilot project uses blockchain technology and is in the shape of a singular “token”. Transactions are completed through nodes which are run by the Riksbank and other participants such as payment service providers.

A service provider can request e-kronor that are issued from the Riksbank in exchange for the user debiting their account in the Riksbank’s settlement system RIX.

The customer can then exchange money in their bank accounts for e-kronor, that they can use for transactions instead.

When a person uses e-kronor for a transaction, the service providers’ nodes verify that the e-krona can be traced back to the Riksbank. The e-krona is then registered as consumed and the transaction is accepted.


An image provided by the Riksbank shows how the e-krona could work.

What happens now?

Following on from the pilot, the Riksbank said they will continue to work on a digital currency that will be usable in everyday life.

Phase 2 will include working with potential distributors, developing offline functions and assessing scalability for retail payments. This phase is expected to last at least a year.

How likely is a digital currency actually to happen?

There is still a long way to go before a digital currency is a reality. Several huge questions remain. For example, there is currently no legislation within this area, and new legislation would be needed. User identity protection is also an important question, as every e-krona contains information about previous transactions and recipients.

As of today, there have been no decisions on whether an e-krona should be issued and what that would look like. The Riksbank are clear that this is technology that needs further investigations and the pilot is not the final solution that has been chosen as the digital currency.

Member comments

  1. Utterly pointless. Blockchain is a solution looking for a problem. Prepaid debit cards would allow people without bank accounts to use existing cashless payment systems, without creating another one.

    The difficulty of getting a PN is a separate issue and is a structural inequality in Sweden that should be fixed. But it’s too convenient for anti-immigration folks to use it as a way to make life difficult for non-Swedes.

    Strongly suspect this is all so the Riksbank can stay hip with the dudebros by using blockchain, yah

    1. I think the biggest point of using the blockchain here is to check whether ekrona that is being received was actually a valid token that was issued by the Riksbank and that it was acquired by the person before they send it off to somewhere else.

      At the moment banks do give us a notion of being cashless, but these banks are probably also working under the cover with the flow of actual cash (which again, is checked physically, whether they were printed by the Riksbank).

      I guess, as we do already have banks set up to handle our krona in digital form, we could expect the ekrona to replace what banks are currently doing under the hood with real krona bills?
      I think I’m trying to say, don’t expose this ekrona thing to the general public, just have the banks manage everything! And to the general public, keep life the way it is now?

    2. Thanks for your reply, Mark. As I finished reading, I wondered “how is this better than what already exists?” I don’t see the benefit for Sweden financially or to the Swedish economy. Agreed, re: structural inequality of obtaining a PN *and* agreed that as SD/anti-immigrant folks attempt to weaponize anything at their disposal (citizenship tests, for example) they seek to weaponize this, too.
      So, I don’t see this as easier/safer to manage than what already exists, I don’t see it improving the wealth of Swedes in general or the nation as a whole and I *do* see its potential to be weaponized by darker political/social forces in the country. *And* I have to wonder 1) who specifically is pushing for this and 2) how will they particularly benefit from it?

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MONEY

Three ways Sweden’s slashed interest rate will boost your finances

Sweden's central bank, the Riksbank, in May lowered the policy rate for the first time in eight years. How could this affect the finances of those of us living in Sweden?

Published: 8 May 2024 12:01 CEST
Updated: 14 May 2024 05:44 CEST
Three ways Sweden's slashed interest rate will boost your finances

Lower mortgage rates

The policy rate is not the same as the interest rate on your mortgage, although they are linked. In a policy rate prognosis from March, the bank predicted that the policy rate could drop to as low as 2.75 percent by the end of 2025, a drop of 1.25 percentage points since the beginning of 2024.

If mortgage rates drop by the same amount, you could expect a drop in the monthly cost of a 3 million kronor mortgage of around 3,000 kronor a month, not including the tax rebate for interest costs.

Higher property prices

As mortgage rates get lower, the housing market is likely to improve, as buyers know their monthly costs aren’t going to skyrocket due to ever-rising interest rates.

If you already own a home and you’re planning on buying and selling at the same time in the market, this will affect you less, as the price of your new home will most likely go up at the same rate as the price of your old home, but this is good news for anyone planning on selling.

It’s worse news for first-time buyers, who will have to save a larger deposit as prices go up, but on the other hand they’ll get lower mortgage rates and a more stable policy rate makes it easier to plan ahead for the future without being surprised by ever-increasing rates.

A stronger Swedish economy

The Riksbank’s decision to lower the interest rate is proof that the bank believes inflation is over – for now at least. This means that we can expect to see inflation remain at a more stable level, and we’re unlikely to see anything close to the ten percent inflation we saw at the end of 2022.

Lower inflation means that Swedish monetary policy won’t need to be as cautious or restrictive in the future, as the government and the central bank no longer need to put all their efforts into fighting inflation.

That’s not to say that authorities will start stimulating the economy just yet – they’re likely to proceed with caution to make sure inflation really is down for the long-term – but Thursday’s interest rate announcement indicates that the “economic winter” Finance Minister Elisabeth Svantesson warned of in September last year could be drawing to a close.

Is it all good news?

In the short term, the value of the krona is likely to worsen somewhat, as the central bank has lowered Sweden’s interest rate ahead of other major central banks. The krona weakened slightly after the bank’s announcement on Thursday, dropping 8 öre in value against the dollar and 7 öre against the euro.

This is good news for people with income in other currencies, but bad news for those of us who are paid in kronor.

Having said that, a stronger Swedish economy is good news for the value of the krona in the long term, although it’s difficult to predict when the krona will start to gain in value and by how much.

At the end of last year, Riksbank governor Erik Thedéen described the krona as “undervalued”, and underlined the importance of having strong foundations in the Swedish economy.

“The Swedish economy is, at its foundations, well-managed, and sooner or later this will lead to a stronger exchange rate,” he said. “Sweden has strong finances, a well-educated labour force, responsible salaries and a good underlying level of competition.”

“As anyone who has tried to predict the exchange rate knows, it’s genuinely difficult to say exactly when it will go up and by how much, but it can also happen quickly when the trend is broken and the krona starts to gain in value.”

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