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Sweden starts testing new official digital currency

The Swedish Central Bank, the Riksbank, is launching a pilot scheme for a new digital currency that will aim to show how it could be used by the public as a complement to cash.

Published: 20 February 2020 17:23 CET

Sweden starts testing new official digital currency

Could these soon exist as a digital version? Photo: Martina Holmberg/TT

The announcement comes years after the Riksbank first said it was looking into creating its own digital currency, an e-krona, based on block-chain technology.

“The aim of the project is to show how an e-krona could be used by the general public,” said the Riksbank in a statement on Thursday.

“A digital krona should be simple, user-friendly as well as fulfil critical requirements for security and performance.”

The pilot project will be run “in an isolated test environment” together with digital tech consultants Accenture and there are no confirmed plans to issue an e-krona to the public, or what technology would be used.

For now, the project will be based on so-called Distributed Ledger Technology.

“In the test environment, simulated users shall be able to hold e-kronor in a digital wallet, make payments, deposits and withdrawals via a mobile app. The user shall also be able to make payments via wearables, such as smart watches, and cards,” said the Riksbank.

The pilot is set to run until the end of February 2021.

EDITOR'S PICK:

What you need to know about Sweden's new cash law

Cash is dying a slow death in Sweden, with alternative methods of payment commonplace, such as card and mobile payment app Swish.

In 2010 nearly 40 percent of Swedes said they paid for their most recent purchase in cash, according to a report by the Riksbank. By 2018 that proportion had drastically decreased to 13 percent.

Proponents hail the cashless society as safe and convenient. But for, for example, elderly people, or international residents struggling to set up a bank account, it can also cause a number of headaches.

The Riksbank has previously said that if the e-krona is issued it will be as a complement to rather than a replacement for cash, adding that it will continue to issue banknotes and coins as long as there is a demand for them in Swedish society.

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Three ways Sweden's slashed interest rate will boost your finances

Lower mortgage rates

The policy rate is not the same as the interest rate on your mortgage, although they are linked. In a policy rate prognosis from March, the bank predicted that the policy rate could drop to as low as 2.75 percent by the end of 2025, a drop of 1.25 percentage points since the beginning of 2024.

If mortgage rates drop by the same amount, you could expect a drop in the monthly cost of a 3 million kronor mortgage of around 3,000 kronor a month, not including the tax rebate for interest costs.

IN FIGURES: How could lower interest rates affect your Swedish mortgage?

Higher property prices

As mortgage rates get lower, the housing market is likely to improve, as buyers know their monthly costs aren’t going to skyrocket due to ever-rising interest rates.

If you already own a home and you’re planning on buying and selling at the same time in the market, this will affect you less, as the price of your new home will most likely go up at the same rate as the price of your old home, but this is good news for anyone planning on selling.

It’s worse news for first-time buyers, who will have to save a larger deposit as prices go up, but on the other hand they’ll get lower mortgage rates and a more stable policy rate makes it easier to plan ahead for the future without being surprised by ever-increasing rates.

A stronger Swedish economy

The Riksbank’s decision to lower the interest rate is proof that the bank believes inflation is over – for now at least. This means that we can expect to see inflation remain at a more stable level, and we’re unlikely to see anything close to the ten percent inflation we saw at the end of 2022.

Lower inflation means that Swedish monetary policy won’t need to be as cautious or restrictive in the future, as the government and the central bank no longer need to put all their efforts into fighting inflation.

That’s not to say that authorities will start stimulating the economy just yet – they’re likely to proceed with caution to make sure inflation really is down for the long-term – but Thursday’s interest rate announcement indicates that the “economic winter” Finance Minister Elisabeth Svantesson warned of in September last year could be drawing to a close.

Is it all good news?

In the short term, the value of the krona is likely to worsen somewhat, as the central bank has lowered Sweden’s interest rate ahead of other major central banks. The krona weakened slightly after the bank’s announcement on Thursday, dropping 8 öre in value against the dollar and 7 öre against the euro.

This is good news for people with income in other currencies, but bad news for those of us who are paid in kronor.

Having said that, a stronger Swedish economy is good news for the value of the krona in the long term, although it’s difficult to predict when the krona will start to gain in value and by how much.

At the end of last year, Riksbank governor Erik Thedéen described the krona as “undervalued”, and underlined the importance of having strong foundations in the Swedish economy.

“The Swedish economy is, at its foundations, well-managed, and sooner or later this will lead to a stronger exchange rate,” he said. “Sweden has strong finances, a well-educated labour force, responsible salaries and a good underlying level of competition.”

“As anyone who has tried to predict the exchange rate knows, it’s genuinely difficult to say exactly when it will go up and by how much, but it can also happen quickly when the trend is broken and the krona starts to gain in value.”

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