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E-Krona and Digital Euro: Coexistence Plan

digital euro

Sweden’s central bank says a digital euro won’t replace the krona.

In a Tuesday staff letter, Sveriges Riksbank said the digital euro may help Sweden. It suggested a stronger, more competitive payment system. The bank suggested a slight movement away from bank deposits. Due to the proposed digital euro holding cap, the Riksbank considers any impact will be limited.

The digital euro may be used outside the eurozone. The system is meant for eurozone countries, but a proposal permits non-eurozone states to join through ECB agreements. inhabitants and businesses in such nations might access the digital euro on par with eurozone inhabitants and businesses.

Related: Cryptocurrency Goes Mainstream? EU Explores UCITS Integration

Sweden’s central bank said institutional considerations won’t “crowd out” the krona. It stated government payments are made in Swedish kronor, strengthening its dominance as the main currency.

“Since we pay taxes in Swedish kronor, we prefer to receive our salary in that currency,” the Riksbank added. When firms pay salaries, their principal expenses, in Swedish kronor, they prefer to charge customers in that currency.

Even without visiting or living in the eurozone, Swedes can utilize digital euros. Like eurozone firms, Swedish enterprises can receive digital euro payments but must transmit them straight to a bank account.

Benefits vs. Risks: Weighing the Digital Euro

The European Central Bank (ECB) began a two-year digital euro project planning phase late last year. This time will involve developing guidelines, selecting private sector partners, and conducting testing and trials.

The EU’s draft proposal, which may be altered, lists substantial benefits of a digital euro. However, not having one could have serious consequences.

The draft guidelines allow the ECB to limit digital money holdings. Limits of 3,000 to 4,000 euros are being considered.

The digital euro could destabilize the Swedish krona. High inflation can cause price volatility. Swedish enterprises may move to euros if this becomes a problem. People may also retain more euros (a more stable currency) than krona. A “flight to quality” could weaken the krona.

Another factor is the evolution of the digital euro, which will determine if Sweden launches an e-krona. The bank believes an e-krona would strengthen the Swedish krona in Sweden if the digital euro becomes popular.

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