E-krona became the main theme of the latest edition of the Riksbank’s Economic Review
According to a blog post by the Riksbank, the institution is investigating the possibility and consequences of introducing a Swedish central bank digital currency, a so-called e-krona. It dedicated the latest issue of its journal Economic Review to discuss the e-krona from different perspectives.
Here are some of the analyses and investigations on e-krona made by employees at the Riksbank:
- Marianne Nessén, Peter Sellin and Per Åsberg Sommar explain how an e-krona would change the Riksbank’s balance sheet, and how the framework for implementing monetary policy might be affected. One message is that the Riksbank already issues digital money, but only to the institutions participating in the Riksbank’s RIX payment system. An e-krona can then be regarded as the Riksbank broadening the circle of those who can hold digital central bank money to include the general public. Depending on how the e-krona is designed, there could at times be large flows through the Riksbank’s operational framework and balance sheet, which points to there being a reason to review the framework if an e-krona is introduced.
- Hanna Armelius, Paola Boel, Carl Andreas Claussen, and Marianne Nessén examine the monetary policy and economic consequences of an e-krona with characteristics that mean it can be likened to an actively traded financial asset. If such an e-krona is not interest-bearing, the consequences can be a lower bound of zero percent for the policy rate and also for other interest rates in the economy, which could reduce the monetary policy room for maneuver. Such an e-krona can lead to greater volatility in capital movements and in the development of the exchange rate. The long-term economic developments can benefit if the e-krona improves the efficiency and resilience of the financial system. But the economy can be affected negatively if the credit supply and financial stability deteriorate.
- Björn Segendorf studies how great the demand for an e-krona might be because if there is a very large demand, this could significantly increase the size of the Riksbank’s balance sheet and have implications for monetary policy and financial stability. The article focuses on how many e-krona may be in demand to meet the need for transactions in the Swedish economy. The overall conclusion is that it is reasonable to believe that demand will be relatively small from a transaction perspective, roughly on a par with the demand for cash in Sweden in recent years, which has amounted to the equivalent of 1-2% of the gross domestic product.
- Reimo Juks analyses how an e-krona might affect the commercial banks’ balance sheets, with a focus on the banks’ liquidity, financing sources and financing costs. The author finds that even if an e-krona reduces the banks’ deposits and thereby affects their financing and liquidity, they will normally be able to steer these outflows by means of their deposit rates. To the extent that it is not desirable or even possible for the banks to completely counteract such an outflow, they can to a greater degree rely on long-term market funding to continue to finance lending. The author finds that in times of financial unease, an e-krona can lead to greater disruptions in relation to the current system, but that this depends on whether the e-krona has characteristics that make it more attractive than existing assets in times of financial stress. To summarise, the author argues that there is no decisive argument against an e-krona from a financial stability perspective for the Swedish banks.