Riksbank, the central bank of Sweden, said on Wednesday that it had begun testing the electronic version of the crown, bringing the country closer to creating the world's first central bank digital currency (CBDC).
Riksbank said that if this electronic currency eventually enters circulation, it will be used to simulate daily banking operations, such as payments, deposits and withdrawals from digital wallets such as mobile applications.
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"The purpose of the project is to show how the general public can use electronic kronor," the Bank of Sweden said in a statement.
In January this year, the central banks of the United Kingdom, the Eurozone, Japan, Sweden and Switzerland jointly assessed the issuance of central bank digital currency (CBDC).
CBDC is still a traditional currency in nature, but in digital form, it is issued and managed by the central bank of a country. In contrast, cryptocurrencies such as Bitcoin are created by solving complex mathematical problems and are managed by a decentralized online community rather than a centralized institution.
The sharp decline in cash usage and competition from alternative currencies such as Libra from Facebook have also prompted central banks around the world to consider issuing their own electronic money.
The Swedish central bank said on its website that payments in electronic Swedish krona will be "as easy as sending text messages."
Sweden is the least cash-dependent country in the world, which makes it a litmus test for how central banks respond to people who use less printed currency.
The Swedish central bank said it has not made a final decision on whether to issue an electronic Swedish kronor. According to previous reports, this pilot project was developed by Accenture Consulting and will simulate the use of electronic Swedish kronor in an “isolated test environment”.
According to the Riksbank, only 1% of Sweden's GDP in 2018 came from Swedish banknotes, compared to 11% in the euro area, 8% in the United States, and 4% in the United Kingdom.
Last April, the Swedish central bank asked lawmakers to review the concept of fiat money and its role as a central bank in the digital economy.
"The public no longer uses any form of central bank funds, which will make it harder for the Swedish central bank to promote a secure and efficient payment system," the Bank of Sweden said in April last year.
The revision of this role in the payment system could affect individuals who hold funds in the Swedish central bank's account, which would completely change the distinction between central and commercial banks.
The Swedish central bank said the trial will last until February 2021 and will use blockchain technology.