Sweden’s central bank, Riksbank, has published a report on the results of the third phase of its central bank digital currency (CBDC) experiments, focusing on governance and programmability issues.
The central bank noted that it faces multiple design options for the governance of the e-krona, each offering distinct benefits and disadvantages. Under a low-level governance design, the Riksbank revealed that participants have a wide berth to design interfaces for the general public.
A low-level design has the perks of fostering healthy competition, but the Riksbank stated that it could result in the CBDC “being implemented in different ways, making it difficult for the public to recognize” it. Conversely, a high-level governance design for the e-krona will provide standardized service for the public with the downside of stifling competition and innovation amongst participants.
“The Riksbank needs to conduct an in-depth dialogue with payment market participants covered by a possible future collaborative model for the e-krona in order to find a good balance between the overall objectives of the e-krona and the needs of the general public and the market,” the central bank said.
The report disclosed that the banking regulator preferred distributed ledger technology (DLT) as the foundation for the CBDC system based on its advantages over other systems. The Riksbank specifically hailed the DLT for its programmability, given its desires to make the e-krona “usable for payments in all contexts.”
Under the third phase of CBDC experimentations, the Riksbank explored cross-border payment functionalities for the e-krona with the Bank for International Settlements (BIS). The experiments were under Project Icebreaker which the Riksbank collaborated with the central banks of Israel and Norway.
The Riksbank has been probing into CBDCs since 2020, running multiple pilots on Corda, a DLT platform. Despite the depth of studies, the central bank has remained silent on whether it will launch an e-krona in the future.
Slow and steady may win the race
While central banks are throwing resources at CBDC pilots, they remain cautious over a full-scale public launch. The reason for the slow-and-steady approach stems from the lackluster performance of the CBDCs of Nigeria and Jamaica as both countries struggle to drive adoption.
Over one year after launching the e-naira, Nigeria’s central bank governor has blamed commercial banks for halting the growth of CBDCs over fears of losing their deposits. Jamaica’s Finance Minister launched two new measures to incentivize merchants to adopt its JAM-DEX in the hopes of increasing transaction volumes.
Given the rocky launches, India, Thailand, and Indonesia have disclosed plans to carry out thorough studies before launching their offerings despite recording initial successes with their pilots.