Came across this really interesting speech by Cecilia Skingsley of Riksbank. It is a pity that the media and experts discuss every word of speeches made by Fed and ECB chiefs much of which is repetitive. In the process, we miss such speeches which give you a panoramic view of the burning issues by smaller central banks. And this is from the oldest central bank in the world.
Anyways Ms. Skingsley gives you a very nice historic and institutional account of central banks and their currency function. As cash usage in Sweden is one of the lowest in the world, they are talking much more about digital payments and digital currencies.
Given all this, the big question is should the central bank issue its own currency? If yes, how do we think through the changes? She says we need to think about e-krona as a complement to krona.
Let me refer back to my historical summary and talk about innovation. When the first banknote was produced, it was based on a new technology, in this case the printing press, that had become sufficiently widespread and refined. There was scope to manufacture standardised banknotes of sufficiently good quality. Modern banknotes are of course also a high-tech product with all their security features, but as increasing number of electronic payment forms are developed, physical cash appears increasingly outdated.
Today we can say the same thing about modern communication technology as about the printing presses in the 17th century. Access to the internet is widespread, and computers, smartphones and tablets are household items. Thus, the conditions are ripe for launching more electronic payment forms.8 9 .
My point is simple, if the market can make use of the new technology to launch new and popular payment services, why shouldn’t the Riksbank be able to do the same? I would claim that there is currently a need among the general public and companies to have access to central bank money and that this need will still be there in the future. Perhaps not everyone has this need and perhaps not all of the time, but as the need exists, I think the Riksbank should be able to meet it.
I consider that the Riksbank should carefully consider meeting the general public’s need for central bank money by supplying this in some electronic form. Let me call them e-krona, which you can put in an e-wallet. Let me also be clear about the reason. If the Riksbank chooses to issue e-krona, it would not be to replace cash, but so that the e-krona can act as a complement to cash. The Riksbank will continue issuing banknotes and coins as long as there is demand for them in society. It is our statutory duty and we will of course live up to it.
Let me also, for the sake of clarity, repeat that the Riksbank has not decided to issue e-krona yet, but to investigate the possibilities. The low use of cash in Sweden means that this is more of a burning issues for us than for most other central banks. Although it may appear simple at first glance to issue e-krona, this is something entirely new for a central bank and there is no precedent to follow.10 There is a long list of fundamental questions that need to be answered. Let me give you a few examples.
She raises following qs:
- E-krona in an account? — Should we issue e-krona like cash where no accounts are needed or should it be issued via an account?
- Convey e-krona directly to the general public or through the banks? — If we issue via an account then shoulf that account be at a central bank or a bank?
- Should e-krona generate interest? — Experts like Rogoff have said that issuing digital currency will allow central bank to set negative interest rates much easily. This will force people to hold currency and spend and not deposit at bank account. This in turn will help countries get out of liquidity trap much easier.
Other than this there are other issues:
In addition to the questions I have just mentioned, there are a number of other questions, such as technological solutions, consumer integrity and how a solution can be adapted to suite different groups in society. As you hear, I have only been able to take up a lot of questions here. I don’t have all the answers. And I don’t think anyone else has at present. The only thing we can be fairly certain of is that whatever direction the Riksbank chooses to take – whether or not to issue e-krona – it can have a major impact on the payment market, the banks’ business models, the way interest rate setting functions, financial stability, and so on.
She says Riksbank has begin discussions on the issue. It will be tough implementing but it can be done:
I believe that the Riksbank has never before launched such a complicated project in such an unknown area. The complexity of course gives rise to risks and uncertainties throughout the project, something we will need to compensate for by being flexible. I understand those who may think that the whole idea of an e-krona sounds too much.
But the fact is that Sweden has implemented a similar reform before, that is, digitalised financial assets. I am referring to our holdings of shares and other securities. Up until the 1980s, holding shares meant that one had pieces of paper, share certificates. But with the aid of technology and support of the law, shares are now held in accounts.
However, the difference between the historical changeover from share certificate to account and the Riksbank’s plans for an e-krona is that the Riksbank is not intending to abolish banknotes and coins, but is considering supplementing them with another service to the general public. We are also doing this for the people who do not have, do not want to have, or cannot have access to the current version of the payment system, so that they can also manage their payments safely and efficiently.
Learning, problem-solving and new ways of thinking are what innovation is all about. This is what keeps us humans moving forward and I know that there is a lot of knowledge, power of initiative and innovating thinking gathered here today. I myself and the Riksbank will be open to your knowledge in this field. Thank you for inviting me here today.
Also shares are held by few but currency is held by all.
Nice way to think through the issues.
Whatever experts might say about how these things are disruptive and will change things forever should be read with suspicion. These things are hardly anything new. Monetary history shows how the questions remain similar as asked earlier- who should issue, whose account, security and so on. Just that earlier we thought about paper currency/coins and now it is paperless.
Infact, all this could take us back to history actually when central banks were like both a central bank and commercial bank.