During a recent panel discussion, Stefan Ingves, the Governor of Sweden’s central bank, Sveriges Riksbank, laid out a six-step plan for the introduction of is central bank digital currency.
The first issue in this plan is that both large value and retail payments must be settled in the central bank digital currency anywhere around the world, at any time, all year round.
Second, cross-currency and cross border payments must also be settled in the central bank digital currency at any time.
Another issue is the need for a definition of what constitutes a legal tender suited for the digital age. Ingves explained that a legal tender is tied to physical banknotes and if banknotes disappear tomorrow then people won’t use it anymore. At that point, there is no knowing what a legal tender is and that becomes an issue.
There should be a digital currency issued by the central bank and that should be the legal tender. Here, there is a distinction between wholesale central bank money and retail central bank. The central bank digital currency is related to retail because as Ingves said of wholesale money “we already have and have had for a long time.”
The fifth issue here is to make this work in a digital world. The governor says it is absolutely crucial for financial inclusion and regulatory purposes to have a government-sponsored digital identification, without that if you can’t explain in digital form who you are, then you can’t really run these systems. This is also required for the bank to know your customer and for anti-money laundering (AML) measures.
The last issue talks about the requirement for physical money. In cases the digital network goes down, such as if the electricity goes out as Ingves said then you still need physical banknotes somewhere in the country or more accurately to be under the control of the central bank.
The Riksbank has been engaged in the research program for issuing its own digital currency, a digital version of Krona, since 2017.
Earlier this month, Ingves also published “How to ensure the future of the Swedish Krona” where he laid out that there is a need for state money and with a strong trend towards “digital solutions,” digital Krona is the way to go.
In the current era of digital currencies and with companies like Facebook launching Libra, it has become essential for countries to come up with their own digital currency.