Payments Report 2024

The digitalisation of payments is a global trend

Download PDF

Work on a digital euro is progressing rapidly

Published: 14 March 2024

Central banks around the world continue to explore different aspects of central bank digital currency (CBDC), known in Sweden as the e-krona. In a survey conducted by the Bank for International Settlements (BIS), 93 per cent of a total of 86 central banks surveyed said they are actively working on issues related to central bank money. You can read more about CBDCs in the box “Types of central bank money”.

Central banks have different motivations for exploring CBDCs. Often the premise is that the public should have access to state-backed money in a digital world. Moreover, according to the BIS survey, many central banks believe that a CBDC can contribute to a more efficient and robust payment system and smoother cross-border payments. Many also argue that an attractive CBDC can prevent new types of money, such as cryptoassets or stablecoins, enticing customers to take too much risk and, in extreme cases, cause problems for monetary policy. The Riksbank’s motivation for the e-krona is discussed in Section Work on the e-krona continues.

The European Central Bank (ECB) is one of the central banks that is well advanced in its preparations for a CBDC, which it calls the digital euro. After having analysed the issue for the past two years, they have now entered a preparation phase which will continue for the next year or so. When this phase is concluded, in autumn 2025, the ECB is expected to take a new decision on whether to continue preparations for the launch of a digital euro.

In parallel with the ECB’s work, the European Commission has developed a legislative proposal for a digital euro, which was presented in June 2023. This type of legal framework is needed if the ECB later decides to issue a digital euro. The draft legislation addresses aspects such as how users can access digital euro, design requirements and how they can be used. The draft legislation is currently being negotiated among EU Member States. The Riksbank follows the ECB’s work and the ongoing negotiations and the possible consequences for Sweden. For example, it is important that any e-krona is designed to be exchangeable for a digital euro.

Different types of central bank money

In Sweden, most people use money issued by a commercial bank when making payments, i.e. the money they have in their bank account. But there is also money issued by the Riksbank, known as central bank money. The type of central bank money most people are familiar with is banknotes and coins. In addition, there is money held digitally by banks and other financial institutions at the Riksbank in accounts in the RIX payment system. These are also called reserves. Reserves are used by financial institutions when they pay each other. The Riksbank is often called “the banks’ bank”. You can read more about the different types of money that exist today here: What is money?

According to the Bank for International Settlements (BIS), almost all central banks are exploring the possibility of issuing new types of central bank digital currency (CBDC). These are normally divided into two categories. The first and most common type is intended for the general public and is often referred to as “retail Central Bank Digital Currency” (rCBDC). They are intended to be used by private persons and companies for everyday payments and are what the Riksbank has explored so far in its e-krona project, which you can read more about in Section 3.5. Today, only a few central banks have issued an rCBDC. These are the central banks of Nigeria, the Bahamas, Jamaica and the Eastern Caribbean Currency Union. Many more are currently running pilot projects, including China, Russia and India.

The second type of CBDC that central banks are exploring is “wholesale Central Bank Digital Currency” (wCBDC). This is a CBDC intended for transactions between banks, central banks and other financial institutions. wCBDC is very similar to reserves already held by financial institutions on accounts at central banks today (e.g. as in the RIX system) and the boundaries are sometimes unclear. It is often said that wCBDC would be issued on a technical infrastructure other than the traditional financial infrastructure, for example on infrastructure based on distributed ledger technology (DLT), and that it could make it easier to develop new functions that can help improve the efficiency of payments. In addition, wCBDCs could act as risk-free money if other assets are traded in such an infrastructure. However, it is also possible to link the central bank’s existing payment system, such as RIX, with infrastructure based on DLT, for example, and thus achieve similar results. The European Central Bank, for example, has launched a project to explore with the market the pros and cons of different solutions for this.