At the conference “The Future of Money – Central Bank Digital Currency and Beyond” on June 15, 2019 in Stockholm, Sweden, central bank digital currency
(CBDC) and the planned launch of an e-krona were critically scrutinized by academics, central bankers, bankers and monetary reform initiatives.
Why central bank digital currency?
The declining use of cash in everyday payments was the starting point for the Swedish Riksbank to think more intensively about the introduction of a digital “e-krona”. The importance of a central bank digital currency (CBDC) was discussed in detail at the international conference. Leading scientists and central bankers – such as Steve Keen, Michael Kumhof, Miguel Fernandez Ordóñez and the Swedish Riksbank – share the view that central bank digital currency is a groundbreaking step in stabilizing the financial and monetary system.
Sweden is pioneer
The main tasks of the Swedish Central Bank are the stabilization of the financial system and the provision of a means of payment for Swedish citizens. With the sharp decline in cash usage (just 2 percent of the total value of transactions) which is exceptionally low compared with other European countries. If these developments continue, private banks will generate all the money in the future and the Riksbank will no longer be able to perform its tasks. The planned e-krona as a central bank digital currency is the reaction of the Riksbank to these developments. They are confident that CBDC would have a stabilizing effect and ensure safe payment transactions in the event of a banking crisis.
The Riksbank has been investigating the possibilities of introducing an e-krona since 2016 and has already published several reports on the planned CBDC. However, in order for the project to be finalized, debates and decisions of politicians are necessary. As a result, the Swedish parliament (“Riksdag”) decided with a clear majority on the 18th of June to convene a comprehensive e-krona investigation.
“The Riksdag supports the committee’s proposal that the government should urgently appoint an investigation into the consequences for the Swedish payment market of the strong digitization and the reduced use of cash in the Swedish economy. The investigation should have a broad perspective. It includes to investigate the conditions for the role of the state and the private sector on the future payment market and the consequences of a possible payment introduction of a digital central bank currency, a so-called e-crona.” (translation by our Swedish member organisation Positiva Pengar, original text here)
The concept and design of CBDC
Through controversial panel discussions and lectures, one thing became clear in Stockholm: The future of money lies in digitization, and most likely in the form of a CBDC. Prof. Joseph Huber spoke of a monetary tidal wave, away from private commercial bank money to digital central bank money. The experts present agreed on two questions regarding the concrete CBDC design: Firstly, CBDCs are not necessarily cryptocurrencies, albeit the possibility exists and there are exciting technological points of reference. Secondly, a CBDC should be account based and available for retail customers. This means all citizens should have access to a central bank account and be able to switch their deposits with commercial banks into digital central bank money at any time.
CBDC as the future of money?
As was the tenor of the majority of conference participants, CBDC brings practical and necessary progress and tangible benefits. The financial system would be stabilized and the important payments of citizens would no longer be threatened in financial crises.
However, researcher Dirk Niepelt pointed out that a CBDC does not necessarily imply a big change since it would be very dependent on concrete implementation within existing institutions. On the other hand, representatives of the Swedish Banking Federation and the Danish Central Bank see no reason for CBDC for all citizens According to them, that would be possible, but they argue that none of the existing problems would be resolved.
In particular, Steve Keen and Miguel Ordonez explicitly addressed the role of private commercial banks and the need to move away from private money creation, which is still under-appreciated in academic discourse. The privilege of banks to generate new money causes an irresponsible instability of the financial system and thus of the economies.
At the end of the conference, Lars Alaeus, the chair of Positiva Pengar, summarized the discussions and the path towards CBDC as follows: “A CBDC is an important, viable and advantageous step towards sovereign money.”
The preliminary groundwork has been done. Now it is up to politicians to swiftly make the necessary decisions to improve our monetary system.