Swedish banks are concerned about the central bank's E-Krona digital crown project

Swedish Banks Concerned About Central Bank's E-Krona Digital Crown Project - E Krona 1024x575Swedish banks are showing concern about the Central Bank's proposal for a digital crown, the Riksbank, and how it could affect their industry.

The concern of Swedish bankers

In Sweden, the nation that uses less cash globally, Riksbank is considering accepting digital payments based on the traditional electronic crown, the so-called e-krona. In any case, if this project ever goes through, it will probably be possible to trade the currency on platforms such as Bitcoin system.

At the end of last year, Swedish financial markets minister Per Bolund said the Riksbank's finance committee had initiated an assessment of the country's prospects for switching to digital currency, a study that will be completed in November 2022.

But bankers operating in the nation are of the opinion that this would fundamentally change the way the banking system works, according to a Reuters report on Tuesday. In particular, there is concern that if people transfer their money from bank deposit accounts to the e-crown, it could leave banks short of funding and forced to rely on wholesale markets for liquidity, the report says. .

Masih Yazdi, CFO of corporate bank SEB, said all this could jeopardize the country's financial stability, as it could create a situation where banks take on more debt and likely become less profitable.

Still many doubts about the agreements between the Central Bank and the country's banks

How the Central Bank will handle the money it receives is another matter. Rickard Eriksson, an adviser to the Swedish Banking Association, asked whether Riksbank could lend funds to banks to compensate for a possible lack of deposits or whether it intends to keep all funds for itself.

The first option could mean that mortgages and business loans could depend on the risk appetite of the Central Bank. "I don't think Riksbank really thought about it or provided good answers," he told Reuters.

Yazdi added that the Central Bank would face issues beyond monetary policy, such as the issue of privacy. This is because a blockchain-based digital crown would be traceable, unlike the traditional crown.

However, the Central Bank seems focused on wanting to move the project forward. Last October, Riksbank Governor Stefan Ingves asked the Swedish government to "review the concept of legal tender" and prepare an appropriate regulatory environment that would leave room for the electronic crown. “There will be a digital state currency that will be a legal tender, an electronic crown, issued by the Riksbank,” Ingves wrote in a public note at the time.