The proportion of all financial dealings that are conducted through cash payments is experiencing a precipitous fall around the world. One of which is the rapid advancement of technology, which has resulted in the creation of brand-new digital payment systems as well as new methods for putting a digital currency into practice. The growth of e-commerce and the increasing sophistication of end-users are two more factors that are driving change.
Digital signatures the ekrona make it feasible to essentially attest that a value was created by a certain organization. In the case of digital currencies, this certification would pertain to a central bank’s role in the creation of the currency. The ledger can be made decentralized through the use of blockchain technology, allowing network participants to conduct transactions independently of a centralized provider.
The Riksbank, decided in 2019 to investigate the use of digital currencies in the country and established a new section specifically for this goal. It is the responsibility of the company’s “e-krona division” to investigate potential technical solutions for a digital supplement to currency, in addition to the associated regulatory difficulties.
Riksbank awarded Accenture
Riksbank awarded Accenture a contract in February 2020 to provide a technological solution that would later be tested in a closed environment for evaluation purposes. The Riksbank put the system through its paces by simulating a number of actors, including end users, payment instruments, and banks. After the completion of the first phase in April 2021, the Riksbank gave its approval to continue the pilot program into the second phase. The second phase was just completed in February of 2022, and a comprehensive report is scheduled to be released in the spring.
E-kronor is a form of digital currency that can only be issued or withdrawn by the Riksbank, just like physical banknotes. Each token is a digital unit that can only be identified by its owner and comes with a certificate proving that it was issued by the Riksbank. In addition, each token is assigned a certain monetary value, which might differ from one token to the next.
The total amount of money that is in circulation will not change, nor will the value of a single Swedish krona, regardless of whether it is held in the form of digital currency or actual cash. Users are able to store e-kronor locally, but in order to access them, they will require a digital wallet.
One of the essential aspects of the system is the fact that each token may only be used in the system once. This process happens as soon as the token is put into circulation.
E-kronor
E-kronor are initially distributed by the Riksbank to other banks that are participants in the network. These banks, in turn, transfer the currency to the general population. Which it employs in order to submit an e-krona request to Riksbank. After that, Riksbank generates the necessary quantity of digital currency, sends it to the participant’s node, and deducts the amount from the settlement account that is associated with the participant.
After then, participants have the ability to send additional e-kronor to the digital wallets of end-users via a payment instrument, such as a mobile application or a card.
Blockchain technology
The e-krona network is underpinned by the blockchain technology, which is responsible for the generation of a distributed ledger. When it comes to producing or controlling e-kronor, centralised control is something that is only ever required in that particular case. In either of these possible outcomes, the Riksbank will need to be involved, and either its debit or credit system will require modification to reflect the new circumstances.
Participant nodes verify the e-krona transaction history and make certain that it can be traced back to the Riksbank as the issuer in order to assure the legality of the digital currency.
A connection to a centralised server is required in order to access the digital representations of money that are currently in use. These digital representations of money, such as those found in bank accounts, are not capable of being stored locally and therefore require a connection in order to be accessed. E-kronor, on the other hand, are exempt from this restriction because they can be stored locally in digital wallets and do not fall under its purview. If the end-user has a payment instrument in their possession, they can spend money without the involvement of a bank in the transaction as long as the end-user has possession of the payment instrument.
The digital krona’s bright future
During the first stage of the evaluation for the pilot project, the utilisation of simulations was put to productive use. Both the function played by the participants who distribute e-kronor to end-users and the availability of liquidity through the Riksbank settlement system received a lot of attention during this discussion. Aside from enhancing scalability, improving performance and scalability, and providing offline capabilities, the second phase of development focused on a number of additional areas of concern as well.
These are the same challenges that will inevitably occur in every other nation that is bold enough to make the switch to digital currencies that are issued by the central bank at an earlier date (CBDCs). At this point, the most important question that can be asked is about Sweden and her possible inclusion in the early adopter group.
