Digital Euro Use Won’t Displace Swedish Krona: Central Bank Reassures
Sweden’s central bank has stated that the potential adoption of a digital euro will not result in the displacement of the Swedish krona. In a staff memo released on Tuesday, the Sveriges Riksbank expressed its belief that Sweden could benefit from the digital euro, highlighting the potential for a more robust and competitive payment system. The bank acknowledged that there may be a slight shift away from traditional bank deposits; however, it emphasized that this impact would be limited due to the proposed cap on individual holdings of digital euros.
Intriguingly, the use of the digital euro may extend beyond the eurozone. Despite being designed for eurozone countries, a proposal allows non-eurozone members to potentially join the system via agreements with the European Central Bank (ECB). If implemented, this could grant residents and businesses in these countries equal access to the digital euro. Sweden’s central bank, however, played down the potential impact of such an agreement, stating that it would not deter the use of the krona due to institutional factors. Payments involving the government, for instance, are conducted in Swedish kronor, further solidifying its status as the primary currency.
The Riksbank further explained, “For instance, given we pay our taxes in Swedish kronor, we also prefer to receive our salary in Swedish kronor. And when businesses pay salaries, their main expenditures, in Swedish kronor, they prefer to charge customers in Swedish kronor.”
In addition, Swedes can use digital euros even if they have not lived or visited the eurozone before. On the other hand, businesses in Sweden can accept digital euro payments but must transfer them directly to a bank account, as businesses in the eurozone do.
European Union Continues Digital Euro Exploration
The European Central Bank (ECB) initiated a two-year planning stage for the digital euro project late last year. The objectives for this period include finalizing the rules, selecting private sector partners, and conducting tests and experiments.
According to the EU’s draft proposal, which may undergo revisions, the advantages of a digital euro are considerable, while not having one could have significant downsides.
The draft rules grant the ECB authority to limit the amount of money individuals can hold in digital form, with a potential limit of between 3,000 and 4,000 euros under discussion.
Potential Impact on Swedish E-Krona
One potential drawback of the digital euro is its potential to threaten the stability of the Swedish krona. High inflation can lead to price fluctuations, prompting businesses in Sweden to consider pricing their goods and services in euros. Similarly, individuals might choose to hold a larger portion of their wealth in euros due to its perceived stability, which could weaken the krona. The decision to launch a digital Swedish krona, or e-krona, relies on the development of the digital euro. According to the central bank, an e-krona would strengthen the position of the Swedish krona within Sweden if the digital euro becomes widely used.
In addition, leveraging the technology and regulations already established for the digital euro could significantly reduce the cost and complexity of introducing an e-krona. Furthermore, the coexistence of both digital currencies could facilitate smoother cross-border payments.