07 Jan 2021
A new way to pay is causing existential angst among Swedish bankers who worry that the e-krona, an electronic equivalent of Sweden’s currency, could cost them their deposit base.
Sweden launched a review into the e-krona’s feasibility in December after a pilot programme at the central bank, making the Nordic country a litmus test for digital currencies.
The Riksbank wants making payments in e-krona to be “as easy as sending a text”, but bankers in Stockholm say this would radically change the dynamic of the banking system.
Like a banknote or coin, the holder of an e-krona has a direct claim on the central bank, effectively bypassing commercial banks, where most state-backed money is held.
“A rational household would hold its money with the Riksbank,” Masih Yazdi, chief financial officer of Sweden’s largest corporate bank SEB, told Reuters, adding that a central bank offers better interest rates and protection.
As people use less physical cash and alternative currencies such as Bitcoin gain ground, many countries around the globe are looking at issuing their own central bank digital currencies (CBDC).
The Bahamas launched the world’s first CBDC in October and China is expected to have a digital yuan within two years.
Sweden, the least cash dependent economy in the world, is leading the way among Western countries and the government is due to reach a decision by November 2022 on whether to pursue the e-krona.
BORN TO RUN?
If Swedes moved their money out of deposit accounts and into e-krona, this would potentially deprive banks of funding and leave them reliant on wholesale markets for liquidity.
Yazdi is concerned this could make the sector debt-laden and unprofitable, undermining financial stability.
By Colm Fulton, Reuters, 5 January 2021
Read more at Reuters
RiskScreen: Eliminating Financial Crime with Smart Technology
Count this content towards your CPD minutes, by signing up to our CPD WalletFREE CPD Wallet