Adopting a digital euro is unlikely to replace the Swedish krona, according to Sweden’s central bank, the Sveriges Riksbank. In a memo published on Tuesday, the Riksbank acknowledged potential advantages for Sweden with the digital euro, including a stronger and more competitive payment system.
The bank noted a possible minor shift away from traditional bank deposits but believes the impact will be limited due to a proposed cap on individual digital euro holdings.
While the digital euro is primarily for eurozone countries, a proposal would allow non-eurozone members to join the system through agreements with the European Central Bank (ECB). This would enable residents and businesses in these countries to access the digital euro similarly to those in the eurozone.
Sweden’s central bank downplayed the potential impact of such an agreement, asserting that institutional factors would prevent the krona from being "crowded out." The Riksbank emphasized that government payments are made in Swedish kronor, reinforcing its role as the primary currency.
"For instance, since we pay our taxes in Swedish kronor, we also prefer to receive our salary in Swedish kronor," the Riksbank explained. "When businesses pay salaries, their main expenditures, in Swedish kronor, they prefer to charge customers in Swedish kronor."
Additionally, Swedes can use digital euros without having visited or lived in the eurozone. Businesses in Sweden can accept digital euro payments but must transfer them directly to a bank account, just like eurozone businesses.
The European Union Advances in Digital Euro Exploration
Late last year, the European Central Bank (ECB) began the digital euro project's two-year planning phase. During this time, it plans to conduct tests and trials, select partners in the business sector, and finalize the regulations.
The EU's draft plan, which may change before it is published, claims that there are several benefits to a digital euro. Conversely, the drawbacks of not having one could be significant.
The ECB will have the power to limit the amount of digital currency that an individual can possess thanks to the draft regulations. A potential cap of three to four thousand euros is being discussion.
The Swedish Krona Depends on the Digital Euro
The stability of the Swedish krona may be in jeopardy if the digital euro is implemented. Price swings may be caused by high inflation. Should this become an issue in Sweden, companies may decide to start pricing their goods in euros. Additionally, as euros are thought to be a more stable currency than krona, people might decide to hold more of their money in euros. The "flight to quality" can make the krona less valuable.
Furthermore, how the digital euro develops will determine whether or not the Swedish krona, or e-krona, is introduced. If the digital euro is adopted by many, the bank believes that an e-krona will strengthen the Swedish krona's position within Sweden.
Additionally, utilizing the technology and regulations developed for the digital euro could greatly reduce the cost and complexity of introducing an e-krona. Furthermore, the coexistence of both digital currencies could facilitate smoother cross-border payments, the memo stated.
May 2024, Cryptoniteuae