Who needs a CBDC?

FAROS Institutional Investors Forum

Frankfurt, 15 November 2018

Kerstin af Jochnick

First Deputy Governor

Payments – the basis of all economic activity

Confidence in money

Promote a safe & efficientpayment system

Monetary policy

Financialstability

Why central banks were

created

Without confidence: risk

for economic collapse

Money has been adjusted to new technology and needs throughout history

Government moneyPrivate money

Government currency

Demographicsmoney Government

electroniccurrency

Digitalisation affects everyone – CBDCs are now being analysed in many countries

Several factors are pushing developments towards a cashless society

New technology and innovation

New consumption patterns Demographics

Unchanged or increasing demand for cash after the financial crisis - not in Sweden

Source: Bech et al. (2018)

% of GDP

Fewer and fewer people in Sweden are paying in cash

Note. Questionnaire responses. Percentage who paid for their most recent purchase in cash.

Source: The Riksbank

What happens if the Riksbank does not react to the developments?

• Risk for a decline in the trust in the Swedish monetary system

• Groups who cannot manage digital technology risk financial exclusion

• The robustness of the payment system will decline

• Developments governed only by private profit incentives

An e-krona: the concept• A Swedish krona in an account or stored locally, e.g. card/app

• Underlying register traceability

• Instant payments

• Offline functionality, re. regulatory framework

• Non-interest-bearing to begin with

• Anonymous payments for value-based e-krona up to SEK 1 000

• Mandate for value-based e-krona

The e-krona makes the payment system more stable and inclusive

Conclusions of the second e-krona report:

• Continued state presence

• Increased resilience, preparedness and competition

• Payment services for vulnerable groups

Limited effects of an e-krona in normal times

…on the Riksbank's balance sheet;

…the implementation of monetary policy;

…and on financial stability

• A project to create room for manoeuvre

• Basis: The Riksbank’s current mandate value-based e-krona

• Aim: develop one or more proposals for technical solutions for an e-krona

• Timeframe: 2019 -2020

An e-krona pilot: build and test technical solutions

Possible to make use of both new and older technology when developing an e-krona?

• Not appropriate to develop an e-krona based on current versions of the distributed ledger technology

• Future potential – cannot rule out a DLT solution

• Interaction with DLT solutions important

Crypto asset properties not comparable with the e-krona

High transaction cost Poor store of value

Note. USD, average transaction cost for Bitcoin. Note. USD, value development for various crypto-assets (USD). Source: Coinmarket CapSource: Blockchain info

Thank you!