RiskBank E Krona Economic Review 3 2018

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  SVERIGES RIKSBANK Sveriges Riksbank Economic Review 2018:3 Special issueon the e-krona  SVERIGES RIKSBANK ECONOMIC REVIEWis issued by Sveriges Riksbank.Editors: JESPER LINDÉ AND MARIANNE NESSÉN Advisory editorial commiee: MIKAEL APEL, DILAN OLCER, AND THE COMMUNICATIONS DIVISION Sveriges Riksbank, SE-103 37 Stockholm, Sweden Telephone +46 8 787 00 00The opinions expressed in signed arcles are the sole responsibility of the authors and should not be interpreted as reecng the views of Sveriges Riksbank.The Review is published on the Riksbank’s website Order a link to download new issues of Sveriges Riksbank Economic Review by sending an e-mail to: ISSN 2001-029X  3 SVERIGES RIKSBANK ECONOMIC REVIEW 2018:3 Dear readers, The Riksbank has for almost two years been conducng a review into the possibility and consequences of introducing a Swedish central bank digital currency, a so-called e-krona. This third issue of Sveriges Riksbank Economic Review in 2018 is a special theme issue discussing the e-krona from dierent perspecves. Cash is becoming increasingly marginalised in Sweden and the Riksbank needs to consider the role public and private actors should play on the payments market in a digital world. The Riksbank has drawn the conclusion that a digital complement to cash, an e-krona, could be one of several ways for the bank to pro-acvely meet the new digital payment market. The Riksbank has published two interim reports (The Riksbank’s e-krona project, Reports 1 and 2, available at which summarise the conclusions of the project. In this issue we publish some of the background analyses and invesgaons made by employees of the Riksbank and which have formed part of the base for the analyses in Report 2. The arcles are wrien in their own names, and any conclusions they may draw need not necessarily coincide with those in the report. The analyses have studied the consequences of a potenal e-krona from dierent points of view. What is the role of the central bank in the payments market? How much demand for an e-krona might there be? What consequences will this have for the banks? How will interest-rate seng be aected, and what further eects might the e-krona have for monetary policy and economic developments in the long run? It is important to point out that the analyses made in the arcles may have slightly dierent starng points. This applies in parcular with the assumpons regarding the characteriscs of the e-krona. In certain cases, an e-krona is studied that has characteriscs similar to a nancial asset. In other cases, an e-krona is studied that has a more modest usage. The arcles clearly describe in their respecve introducons what kind of e-krona they refer to. In more detail the arcles are as follows: ã Why did the Riksbank get a monopoly on banknotes? Gabriel Söderberg  writes about what is meant by a banknote monopoly and the polical process that led to the Riksbank being given the sole right to issue banknotes in 1904. At that me, the polical discussion focused on the principles for the nancial system and the central bank’s role in society. The background was a growing banking sector and a central bank that was more clearly assuming the character of a public authority. The arcle points to parallels between the discussions then and now, about the role of the central bank in a payment system undergoing major changes. ã What is money and what type of money would an e-krona be? Gabriel Söderberg  begins with a brief historical retrospecve of the dierent forms that money has taken over the years, and observes that money has over me become increasingly abstract. The author points out that the actual form of money is of minor signicance –condence in it is what maers. The central queson is therefore what it is that maintains condence in money. The arcle also discusses the main ways of dening what money is, and discusses what type of money an e-krona would be.   ã The implicaons of an e-krona for the Riksbank’s operaonal framework for implemenng monetary policy Marianne Nessén, Peter Sellin and  Per Åsberg Sommar   discuss the e-krona from a narrower central bank perspecve. In more concrete terms, they explain how an e-krona  4 FOREWORD would change the Riksbank’s balance sheet, and how the framework for implemenng monetary policy might be aected. One message is that the Riksbank already issues digital money, but only to the instuons parcipang in the Riksbank’s RIX payment system. An e-krona can then be regarded as the Riksbank broadening the circle of those who can hold digital central bank money to include the general public. Depending on how the e-krona is designed, there could at mes be large ows through the Riksbank’s operaonal framework and balance sheet, which points to there being reason to review the framework if an e-krona is introduced. ã The e-krona and the macroeconomy Hanna Armelius, Paola Boel, Carl Andreas Claussen and  Marianne Nessén  examine the monetary policy and economic consequences of an e-krona with characteriscs that mean it can be likened to an acvely traded nancial asset. If such an e-krona is not interest-bearing, the consequences can be a lower bound of zero per cent for the policy rate and also for other interest rates in the economy, which could reduce the room for manoeuvre for monetary policy. Such an e-krona can lead to greater volality in capital movements and in the exchange rate. The long-term economic developments can benet if the e-krona improves the eciency and resilience of the nancial system. But the economy can be aected negavely if an e-krona impinges on credit supply and nancial stability. ã How many e-kronas are needed for payments? Björn Segendorf   studies how great the demand for an e-krona might be, because if there is a very large demand this could signicantly increase the size of the Riksbank’s balance sheet and have implicaons for monetary policy and nancial stability. The arcle focuses on how many e-krona may be in demand to meet the need for transacons in the Swedish economy. The overall conclusion is that it is reasonable to believe that demand will be relavely small from a transacon perspecve, roughly on a par with the demand for cash in Sweden in recent years, which has amounted to the equivalent of 1–2 per cent of the gross domesc product. ã When a central bank digital currency meets private money: eects of an e-krona on banks Reimo Juks  analyses how an e-krona might aect the commercial banks’ balance sheets, with a focus on liquidity, nancing sources and the cost of funding. The author nds that even if an e-krona leads to deposit oulows, thereby aecng the banks’ nancing and liquidity, the banks will normally be able to steer these oulows by means of their deposit rates. To the extent that it is not desirable or even possible for the banks to completely counteract such an oulow, the banks can to a greater degree rely on long-term market funding to connue to nance lending. The author nds that in mes of nancial stress, an e-krona can lead to greater disrupons compared to the current system, but that this depends on whether the e-krona has characteriscs that make it more aracve than exisng assets in strained nancial mes. To summarise, the author argues that there is no decisive argument against an e-krona from a nancial stability perspecve for the Swedish banks. Read and enjoy! Jesper Lindé and Marianne Nessén, editors of the Economic ReviewEva Julin, project manager of the Riksbank’s e-krona project
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