The Swedish central bank begins testing the e-krona. How does its design differ from China's DCEP?

According to project reports, the test environment for the Swedish central bank's digital currency e-krona adopts a dual-layer distribution mechanism similar to the People's Bank of China's digital currency DCEP. In the first layer, the Swedish central bank issues e-krona to participating commercial institutions in the e-krona network, and in the second layer, commercial institutions distribute it to end users.

Original Title: "【Headline】Swedish Central Bank Begins Testing Digital Krona Based on Blockchain Technology"
Written by: Blockchain Research Center

On February 20, the Swedish National Bank announced on its official website that it has started testing the digital krona, bringing the country closer to creating the world's first central bank digital currency (CBDC).

The Swedish central bank stated on its website that making payments with digital Swedish krona will be "as easy as sending a text message." If the digital currency eventually enters the market, it will be used to simulate everyday banking activities, such as payments, deposits, and withdrawals from digital wallets like mobile applications. Users should also be able to make payments through wearable devices such as smartwatches and cards.

The technical solution for the pilot project will be based on Distributed Ledger Technology (DLT), commonly known as blockchain technology. The project will evaluate the technical solution in a test environment, simulating participants (such as the public and banks). The consulting company developed by Accenture will simulate the use of digital Swedish krona in an "isolated test environment." Currently, there are no decisions on issuing digital krona, how to design it, or which technology to use. The main purpose of this pilot is to increase the Swedish central bank's understanding of the central bank digital krona.

In January, central banks from the UK, Eurozone, Japan, Sweden, and Switzerland jointly assessed the issuance of CBDC.

The sharp decline in cash usage and competition from other currencies (such as Facebook's Libra) have also prompted central banks worldwide to consider issuing their own digital currencies.

Sweden is the country with the lowest reliance on cash in the world. Its introduction of a central bank digital currency could serve as a touchstone for central banks around the world to test people's reactions to a "less cash society."

According to data from the Swedish central bank, in 2018, only 1% of Sweden's GDP was in Swedish banknotes, compared to 11% in the Eurozone, 8% in the US, and 4% in the UK.

In April last year, the Swedish central bank requested lawmakers to review the concept of legal tender and its role as a central bank in the digital economy.

According to the project report, the current testing environment also involves a two-tier issuance mechanism. In the first tier, the Swedish central bank will issue digital krona to participants in the digital krona network such as banks. In the second tier, participants will distribute digital krona to end-users.

Similar to cash today, only the Swedish central bank can issue and redeem digital krona. Participants in the network will be able to obtain/redeem electronic krona through debiting or crediting reserve funds or through representatives in the Swedish central bank's settlement system RIX. RIX is the central payment system of the Swedish National Bank, where transfers between accounts of different banks are processed. Participants will inject liquidity into the electronic krona network, either directly as participants or indirectly through representatives in RIX paying reserve funds to receive the same amount of digital krona from the Swedish central bank's node.

The digital krona network is a private network, and only the Swedish central bank can approve and add new participant networks to it. All transactions in the digital krona network are separate from existing payment networks. As an independent system, it can enhance the stability of the payment infrastructure in case of problems in existing systems. Payments made in the digital krona network do not require RIX's involvement, but its supply or redemption will go through RIX.

The technical platform underlying the digital krona solution is based on R3's distributed technology platform Corda. Corda differs from cryptocurrencies in many key aspects. For example, the DLT network of digital krona will be private, accessible only to participants approved by the Swedish central bank. Corda's transaction verification solution does not consume as much energy as Bitcoin and can be compared to existing payment systems. Corda also provides high robustness and scalability, with notary nodes set up as a supporting component to prevent double spending.

This article is authorized for reposting by ChainNews. Article source: ChainNews (ID: chainnewscom)

Further Reading

• Central Banks of Various Countries Jointly Accelerate Progress, 18+ Countries Have Digital Currency Plans

• Nordic Countries Moving Towards Cashless Societies, Sweden Continues CBDC Trials, Finnish Scholars Are Not Optimistic

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