The Swedish Central Bank, Sveriges Riksbank, has announced that the introduction of a digital Euro would not lead to the eradication of the Swedish krona. The bank’s recent report highlights several benefits that the digital Euro could bring to Sweden, including a safer and more competitive payment system.
What Might Change for Banks?
According to the report, there could be a slight shift from traditional bank deposits, but with the proposed cap on individual digital Euro holdings, the impact would be minimal. Interestingly, the use of the digital Euro may extend beyond Eurozone countries. Non-Eurozone members could join the system through agreements with the European Central Bank (ECB), offering equal access to businesses and individuals within and outside the Eurozone.
Institutional Implications
The Swedish Central Bank argues that institutional factors will ensure the krona’s continued dominance, mitigating any adverse impacts from a digital Euro agreement. Payments involving the government and general preferences of Swedes and businesses for the krona reinforce its standing as the primary currency in Sweden.
Swedish individuals and businesses could use and accept digital Euro payments, but these funds would need to be transferred directly to a bank account. This would require Swedish businesses to operate in a manner similar to those in the Eurozone.
Details on the Digital Euro
The ECB initiated the digital Euro project last year, embarking on a journey filled with planning, rule-setting, and testing. The European Union’s draft proposal indicates substantial benefits from the digital Euro, although potential risks also warrant consideration. The ECB might limit individual holdings of digital Euros to between 3,000 and 4,000 euros, a matter still under discussion.
Concrete Inferences for Business and Policy
The concurrent use of digital currencies can offer several practical advantages for businesses and policymakers in Sweden:
- Lower cost and complexity in launching Sweden’s e-Krona by leveraging digital Euro technology.
- Enhanced cross-border payment efficiency with the adoption of both digital currencies.
- Businesses might price items in euros during periods of high inflation, affecting krona stability.
Final Thoughts
A potential downside of the digital Euro is the risk to the stability of the Swedish krona, especially in inflationary environments where businesses might price products in euros. However, the development of Sweden’s e-Krona could bolster the krona locally if the digital Euro sees widespread acceptance. Leveraging the advancements made for the digital Euro could also reduce the costs associated with deploying the e-Krona, ultimately facilitating smoother cross-border transactions.