The Central Bank of Sweden has studied the potential of four different models of state-owned cryptocurrency for the local market and published the results of the study.
The Central Bank of Sweden prepared an economic survey in which it described four models for presenting the digital version of the Swedish Krona (e-krona). The four models considered by the Central Bank include “centralized e-krona model without intermediaries”, “centralized e-krona model with intermediaries”, “decentralized e-krona solutions with intermediaries” and “synthetic e-krona”.
“We found that all models have their advantages and disadvantages, but some better meet the current needs of the Swedish payment market than others,” the review says.
A centralized e-crown model without intermediaries will allow the Bank to take responsibility for the entire chain of cryptocurrency distribution. This scheme will open up a completely new role for the Bank, similar to that played by large retail banks. The Swedish Central Bank claims that under this model, the Bank will have significant expenses for staff and customer support functions. At the same time, the Central Bank will become a competitor of private payment services at the retail level, which indirectly creates a market monopoly.
The centralized model with intermediaries closely resembles Sweden’s current financial infrastructure in that it is based on a partnership between the Central Bank and private service providers. In it, the Central Bank of Sweden retains its role at the wholesale level of the payment market. However, in this example, the Bank does not play an operational role in the distribution chain, as in the previous model.
Just as the centralized model described above works, in a decentralized environment, all intermediaries using e-crowns will have a direct contractual relationship with the consumer.
“This model is a decentralized database of all electronic crowns in circulation, with the Central Bank checking all transactions before they are settled,” the document says.
The review States that the Central Bank of Sweden will have to develop a contingency plan if one or more intermediaries cease to perform their functions. In this case, the Bank should be able to provide a large number of customers with payments via e-krona.
The last model considered in the Central Bank’s economic review was the synthetic electronic crown. The document explains that in addition to providing more institutions with access to real-time gross settlement systems (RTGS), “the model is mainly based on new legislation that will require banks to create separate accounts.”
This model is very similar to the existing one, where the role of the Central Bank is to act as an intermediary for the payment system, and the private market is a secondary layer that serves customers. For the private sector, ” existing payment solutions can continue to work as they do today, without the need for additional hardware or investment.”
“What makes the synthetic e-krona attractive is its limited scale compared to the other models we have described. This model will not entail large investments in infrastructure, and the Central Bank of Sweden may not take full responsibility for KYC, ALM, etc. checks, ” the document says.
The Central Bank of Sweden concluded that both a centralized and decentralized model with intermediaries, as well as a centralized model of the electronic crown without intermediaries, will entail significant changes and investments. The review notes that a synthetic digital version of the Swedish Krona may prove viable, but it cannot be classified as a state-owned cryptocurrency.
“Such a minimalistic approach may not achieve the goals of increasing competition and sustainability to the necessary extent, as it will be very similar to today’s system,” the review says. “In addition, this system will not directly depend only on the Central Bank of Sweden and it is unclear whether such an electronic crown can be considered a state cryptocurrency.”
Recall that the Central Bank of Sweden has started
testing of the first state – owned cryptocurrency in Europe-the electronic crown in February this year. The goal of this initiative is to show that citizens can benefit from using the e-crown.