Nordic nation’s central bank plans to test its CBDC with the country’s largest commercial bank, Handelsbanken
No doubt many of the smaller nations are much more receptive to the idea of issuing digital currencies since they don’t have major political, economic, and legislative hurdles to overcome; like many of the major economies. Apart from smaller countries like Venezuela (Petro) and the Bahamas (Sand dollar) floating their digital currencies, the most serious attempt so far, to launch a digital currency by a major central bank (CBDC) has come from China. Most of the western pilots have been stuck in the exploratory phase.
However, most of these initiatives are aimed at tackling the growing influence of decentralized cryptos. And the lack of any legal framework to regulate mainstream cryptos has added to the confusion. So far, none of the countries in the World has accepted Bitcoin or any other cryptocurrency as a legal tender in their jurisdiction.
There was a surprise move by El Salvador President Nayib Bukele at the recent Bitcoin 2021 Conference, where he promised to send a bill to his nation’s legislature next week to make Bitcoin (BTC/USD) legal tender in his country. With the President’s party in control of the legislature, it is certain to pass — making El Salvador the first sovereign nation on the planet to recognize Bitcoin as legal tender.
“The e-krona pilot is therefore moving on from only having simulated participants to cooperation with external participants in the test environment.”
~ Riksbank Statement
This could be a game-changer for the Central American country where 50% of the population is unbanked & and remittances from overseas account for more than 20% of GDP on which legacy financial institutions charge upwards of 10% in fees — with money held for days. Minuscule payments and instant transfers brought about by this move could be a juicy proposition for consumers. In addition, Lightning payments network Strike is working in partnership with El Salvador.
Despite this encouraging news for mainstream cryptos, they are not market movers — unless of course, you have a major economy making a similar move. Sweden is one of the most cashless societies in the world and provides an ideal environment for launching a digital currency. And the Nordic country has been experimenting with a CBDC, dubbed as e-krona, for years — it now appears to be second only to China among major economies in the advancement of its CBDC plans.
As reported by Reuters, e-krona is set to move from the simulation phase to a testing environment with external participants. Sweden’s central bank aims to work with the country’s largest commercial bank Handelsbanken to see if the proposed digital currency can handle payments in the real world. A couple of months ago, Riksbank had announced that it would rope in commercial partners to gauge the viability of e-krona for retail and large commercial payments.
Although issuing of CBDCs goes against the whole theme of decentralization that the mainstream cryptos work on, nevertheless, the financial authorities around the globe can’t ignore the digital transformation brought about in the financial ecosystem by Bitcoin and the associated cryptos. It will be interesting to see whether we end up having a hybrid model where both philosophies can co-exist or one where one pushes out the other. Your thoughts?
Originally Published on Medium