Sweden

Retail CBDC

Sweden is one of the few countries where the cash usage is among the lowest. As of 2016, the total value of cash payments between consumers and companies should have been around SEK 200 billion or less, which is to say about 1.4 per cent of the total value.

Some of the key objectives of the pilot project include:

1. Exploring the technical feasibility of a CBDC: The Riksbank has been testing various technical solutions to determine whether a CBDC is technically feasible and how it might be designed.
2. Assessing the potential benefits of a CBDC: The Riksbank has been examining the potential benefits of a CBDC, including increased efficiency, financial inclusion, and reduced dependence on cash.
3. Identifying potential risks and challenges: The Riksbank has also been assessing the potential risks and challenges associated with a CBDC, including issues related to privacy, cybersecurity, and financial stability.
4. Engaging with stakeholders: The Riksbank has been engaging with various stakeholders, including banks, payment providers, and the general public, to gather feedback and input on the pilot project.

Overall, the goal is to inform the Riksbank’s decision on whether to issue a CBDC in the future and how it should be designed and implemented.

Sweden published its first e-Krona Project report in September 2017. It then did 3 Pilots to test different technologies, use-cases and design considerations. The 3rd pilot report was published in Apr 2023. Each of the pilot studies had certain goals in mind that were examined. Unlike other countries, Sweden should not have a problem to push users towards CBDC considering the cash usage is very low already.

 The e-krona pilot also participated in a cooperation project with the Bank of Israel, Norges Bank and the Bank for International Settlements (BIS), which examined whether CBDC’s could facilitate cross-border payment, which are often expensive and cumbersome.

Sweden tested several use-cases with fictitious scenarios.

Use-Cases:

1. ) Opportunities for Offline Payment

The work in Phase 2 has shown that it is possible to store the e-kronor locally on a mobile phone. This makes off-line transactions possible, but since the solution is based on an on-line e-krona network, off-line transactions pose risks that would need to be managed.

2.) Retail Payments — Integration with POS Terminals

e-krona specific software was implemented in a POS terminal that enables payments with e-krona and other card networks in the same terminal. The enduser initiates purchases with e-krona against the store’s terminal, which communicates directly with the e-krona network. The payment is made through the nodes of their participants in the network.

3.) Cross-border payments 

The Riksbank’s e-krona pilot also participated in a cooperation project with the Bank of Israel, Norges Bank and the Bank for International Settlement (BIS). The project, called Icebreaker, demonstrated how cross-border payments could work using different central bank digital currencies.

4.) Conditional Payments

One use-case was simulated — Say a buyer wants to buy a specific car from a car dealer at an agreed price. The buyer and the dealer want a technical solution that allows each of them to fulfil their part of the transaction if, and only if, the other party fulfils its part. In this case, the condition for the transaction to be completed is that the amount from the buyer is correct according to the contract and that the car dealer has registered the buyer as the new owner of the specific car within a certain time. This is known as DvP (delivery versus payment). The technology used in this use case was based on putting a conditional lock on the specific e-krona tokens to be included in the transaction from the buyer to the car dealer.

Design Considerations:

The e-krona in the technical solution tested in phase 1 of the e-krona pilot is token-based in a distributed network based on blockchain technology. Having a token based e-krona, which can only be created by the Riksbank, gives it certain attributes similar to physical cash.

The exclusive authority to create and remove e-kronor belongs solely to Riksbank. In the e-krona network, participants have a relationship with Riksbank and with end-users, and operate their own nodes to request the issuance of e-kronor from Riksbank in exchange for debiting their accounts in RIX. Riksbank’s node then creates the e-kronor, which are distributed to participants’ nodes and can be stored in participant vaults for distribution to end-users.

 The e-krona network utilizes R3’s Corda blockchain platform, which is a decentralized private network where Riksbank controls who can join as a participant. Transactions using e-kronor are registered with the participants in the network involved in the transaction, and not in a central database. Participants such as banks and payment service providers run their own nodes in the network to request the issuance of e-kronor and to carry out transactions on behalf of connected end-users.

 The network is independent of current payment infrastructures, such as card networks and bank credit transfers, which ensures that payments can still function even if existing payment infrastructure is down. No new money is generated in the e-krona network, and liquidity is supplied by RIX.

Solutions:

No solution has been finalised yet. The Riksbank has an agreement with Accenture as technical supplier to continue testing the possibilities of the technical solution. 

Source:

https://www.riksbank.se/en-gb/payments–cash/e-krona/

Cross border Retail CBDC : Project Icebreaker

Focus Area:

Retail Cross border CBDC

Overview:

The Bank for International Settlements (BIS) and the central banks of Israel, Norway and Sweden collaborated on Project Icebreaker, which studied the potential benefits and challenges of using retail central bank digital currencies (CBDC) in international payments.

Project Icebreaker investigates the possible advantages and obstacles associated with implementing retail Central Bank Digital Currency (CBDC) for cross-border payments. It examines the technical viability of executing cross-border and cross-currency transactions using various Distributed Ledger Technology (DLT)-based CBDC proofs of concept.

Motivations:

The primary objective was to acquire a more profound comprehension of the utilized technologies and to recognize crucial technical and policy decisions and trade-offs that central banks must contemplate while designing CBDC implementations to enable seamless cross-border payments.

Financial institutions involved:

• Bank of Israel
• Norges Bank
• Sveriges Riksbank
• BIS Innovation Hub

Technology & Design partners:

• Ethereum Quorum
• Hyperledger Besu
• Corda DLT

Technical Solution:

The Icebreaker model streamlines cross-border payments by establishing connections between various rCBDC systems. FX providers, who hold memberships in multiple rCBDC systems, can exchange one currency’s rCBDC for another. Essentially, they would purchase a currency using rCBDC from one system and pay with another currency’s rCBDC from a different system. For example, if Alice in Sweden wanted to pay Bob in Israel, the FX provider would buy Swedish krona and sell Israeli shekels. An FX provider could be any entity, such as a financial institution holding wallets in two or more rCBDC systems, willing to assume FX risk to facilitate the transactions. The cost of holding and managing liquidity, along with the FX risk, would be reflected in the spread between the buy and sell rates for each specific currency.

The figure below illustrates different domestic rCBDC systems with diverse distribution models, exemplifying the potential variations in design and technology choices within the Icebreaker model. This representation draws inspiration from the three PoCs in the experiment. Additionally, it assumes that the FX provider utilizes a wallet provider for its FX wallet, though this might not always be the case, as an FX provider could act as its own wallet provider.

Conclusion:

Project Icebreaker demonstrates that central banks can maintain nearly complete autonomy in designing their domestic rCBDC systems while simultaneously participating in a structured interlinking arrangement that facilitates cross-border payments.

Source:

https://www.boi.org.il/media/31vbknly/icebreaker-full-report.pdf