MNI INTERVIEW: Riksbank Seeks To Win Over Banks To e-Krona

The Riksbank will develop incentives to encourage banks to use its planned digital currency, officials leading the initiative told MNI, adding that while the e-krona will not bear interest lenders may otherwise be unenthusiastic about engaging with a project which they might fear could endanger their deposit bases.

The Riksbank, a leader among western central banks in developing digital currency, needs to further explore what “the incentives of potential distributors could look like,” economist David Loov said in a joint interview with the head of the Riksbank’s e-krona division, Mithra Sundberg, “It is an important question and a tough question.”

It is already clear that Sweden’s central bank digital currency cannot bear interest.

“That is a question that we have been discussing quite a lot and we don’t have a decision on it but … one lesson we have learned, if it is a cash-like e-krona it should not be interest-bearing,” Sundberg said.

Nor can the digital currency be permitted to lure away central bank reserves.

SAFEGUARDS AGAINST DRAINING RESERVES

“We want to safeguard the monetary policy tools that we have today so that a CBDC does not become a competitor to reserves …What is very important is that we can set incentives or other types of restrictions so that we don’t cripple the monetary policy tools that we have … so that it doesn’t become a threat to financial stability,” Loov said.

The Riksbank has just completed another phase of its E-krona development, working with commercial banks to ensure private sector bank deposits can be converted into CBDCs and back again. But more steps towards its implementation must await the results of a parliamentary inquiry into the implications of digital currency."They will present in November and after that we will be able to set the timetable, roughly,” Sundberg said.

While some have warned that CBDCs could enhance the power of central banks to monitor financial transactions, the Riksbank’s model will emphasise privacy.

“We try to distance the Riksbank from data on who buys what. We want to keep our role as far as possible as creator of money and not as a regular bank for the public," Loov said.