This Opinion Piece was originally published in the Swedish newspaper "Dagens Nyheter". You can Read original version in Swedish here.
After more than five years of deliberations, Eurozone finance ministers have finally decided to introduce a 'digital euro'. However, the proposal imposes several restrictions on citizens and businesses. In the United States, President Trump banned the e-dollar by executive order as soon as he came to power. The corresponding proposal for an e-krona in Sweden has been languishing for almost nine years without a decision.
Why is the project to introduce central bank digital money moving so slowly, and why are there so many limitations in the proposals? The answer is the strong opposition from the influential commercial banks.
In Sweden, the Payment Inquiry acknowledged that "banks have a strong position and great political influence". Already in 2019, they managed to convince both the Swedish National Debt Office and the Swedish Financial Supervisory Authority, led by Erik Thedéen, to submit critical and similar consultation responses to the Riksbank's proposal for an e-krona.
In 2023, the inquiry, chaired by Anna Kinberg Batra, concluded that Sweden did not need an e-krona, but rather that the proposal was associated with major risks. The inquiry threw the ball back for further investigations to the Riksbank, where Thedéen was the new Governor.
Private banks around the world have sought to stop central bank proposals for digital money, such as the krona, euro and dollar. At the same time, they want to continue using digital money issued by the central bank. Why are they against the project when they are so in favor of using digital money themselves?
The answer is simple: they would lose a privilege.
Today, banks are the only ones allowed to hold and use central bank-issued digital money. They use central bank digital money every day to make payments with each other and with the central bank. Central banks have built an entire IT infrastructure for this, which only financial institutions can use. If the Riksbank stopped issuing digital kronor, it would have to issue huge amounts of liquidity support in the form of banknotes to enable banks to make their payments.
Banks currently hold hundreds of billions of digital kronor at the Riksbank, on which they earn interest. Since the pandemic, the Riksbank has paid over SEK 80 billion in interest to commercial banks. At the same time, commercial banks have paid hardly any interest at all to their customers.
The public and businesses are not allowed to hold or use digital Swedish krona. They can only use physical kronor, i.e. banknotes and coins, issued by central banks. To pay by card, Swish or credit transfers, credit money issued by commercial banks is the only option available today. But they are not real Swedish kronor, but only promises to repay kronor at some point in the future - promises that may prove impossible to fulfill during a financial crisis.
Now central banks want to open up their IT infrastructure to make it possible for all citizens and businesses to use digital crowns, dollars and euros - without having to go through a commercial bank. We should be able to choose our payment service without any restrictions. This would mean that the big banks would face tough competition.
The most common objection of the big banks to the proposal is that their funding and financial stability would be threatened if everyone was allowed to move most of their money to the central bank overnight. But the European Central Bank (ECB) and the Riksbank have not proposed a total and immediate deregulation of the banking system. The proposals do not give citizens full freedom to choose where they want their money - at least not yet. They include restrictions such as caps and zero interest rates precisely to protect banks from competition.
But central banks around the world are exploring central bank digital money and finance ministers in Europe have taken a stand - how could banks stop this development?
Banks have persuaded several MEPs to argue against the proposal. They are repeating the same arguments that the banks have been spreading for five years. This has not convinced the ECB, the European Commission or EU finance ministers. But it has been enough to stall the proposal. The Commission's legislative proposal for a digital euro from June 2023 is still sitting on a shelf in Brussels, gathering dust.
The e-krona is not a utopian idea but an obvious step forward to increase competition and freedom of choice in our monetary system. It would also reduce dependence on unstable cryptocurrencies and on banks' credit money, thereby strengthening financial stability.
The e-krona combines the agility of digital technology with a financial security that today's cryptocurrencies and credit money lack. By allowing the public to hold money directly with the central bank, it reduces the risk of bank runs and the need for bailouts in future financial crises.
Sweden was the first country in Europe to introduce paper money and among the first in the world to launch a central bank digital money project for the public. Let's not be the last to make it a reality.
The question is not technical, but political: should digital Swedish kronor remain a privilege for banks or become a right for all citizens? Ultimately, it is a question of who should have the power to decide the future of the monetary system: the banks or democracy?
Read more:
- Op-Ed in the same subject by Miguel Ordonez
- "The European Parliament rapporteur is wrong about the digital euro"