What will the future of money look like
At the conference “The Future of Money – Central Bank Digital Currency and Beyond” on June 15 2019 in Stockholm, Sweden, the concept of central bank digital currency (CBDC) and the planned launch of an e-krona were critically scrutinized by academics, central bankers, bankers and monetary reform initiatives.
Why central bank digital currency?
The declining use of cash in everyday payments was the starting point for the Swedish Riksbank (Sweden’s central bank) to think more intensively about the introduction of a digital “e-krona” and the importance of a CBDC was discussed in detail at this international conference. Leading scientists and central bankers – such as Steve Keen, Michael Kumhof, Miguel Fernandez Ordóñez and the Swedish Riksbank – share the view that CBDC is a groundbreaking step in stabilizing the financial and monetary system.
Sweden is pioneer
The main tasks of the Swedish Central Bank are the stabilization of the financial system and the provision of a means of payment for Swedish citizens. But, due to the sharp decline in cash usage in Sweden (with cash accounting for just 2 percent of the total value of transactions) which is exceptionally low compared with other European countries, if these developments continue, private banks will soon be the sole generator of all the money in the future, which will then prevent the Riksbank from performing its tasks. The planned e-krona as a central bank digital currency is the reaction of the Riksbank to these developments. They are confident that CBDC would have a stabilizing effect and ensure safe payment transactions in the event of a banking crisis.
The Riksbank has been investigating the introduction of an e-krona since 2016 and has already published several reports on it. However, for the project to be finalized, political debates and decisions are necessary. As a result, the Swedish parliament (“Riksdag”) decided with a clear majority on the 18th of June to convene a comprehensive e-krona investigation.
“The Riksdag supports the committee’s proposal that the government should urgently appoint an investigation into the consequences for the Swedish payment market of the strong digitization and the reduced use of cash in the Swedish economy. The investigation should have a broad perspective…includ[ing] the conditions for the role of the state and the private sector on the future payment market and the consequences of a possible payment introduction of a digital central bank currency, a so-called e-crona.” – (translation by our Swedish member organisation Positiva Pengar, original text here)
The concept and design of CBDC
Throughout several controversial panel discussions and lectures, one thing became clear in Stockholm: The future of money lies in digitization, and most likely in the form of a CBDC. Prof. Joseph Huber spoke of a monetary tidal wave, away from private commercial bank money to digital central bank money. The experts present agreed on two questions regarding the concrete CBDC design: Firstly, CBDCs are not necessarily cryptocurrencies, albeit the possibility exists and there are exciting technological points of reference. Secondly, a CBDC should be account based and available for retail customers. This means all citizens should have access to a central bank account and be able to switch their deposits with commercial banks into digital central bank money at any time.
CBDC as the future of money?
As was the tenor of the majority of conference participants, CBDC brings practical and necessary progress and tangible benefits. The financial system would be stabilized and the important payments of citizens would no longer be threatened in financial crises.
However, researcher Dirk Niepelt pointed out that a CBDC does not necessarily imply a big change since it would be very dependent on concrete implementation within existing institutions. On the other hand, representatives of the Swedish Banking Federation and the Danish Central Bank see no reason for CBDC for all citizens According to them, that would be possible, but they argue that none of the existing problems would be resolved.
In particular, Steve Keen and Miguel Ordonez explicitly addressed the role of private commercial banks and the need to move away from private money creation, which is still under-appreciated in academic discourse. The privilege of banks to generate new money causes an irresponsible instability of the financial system and thus of the economies.
At the end of the conference, Lars Alaeus, the chair of Positiva Pengar, summarized the discussions and the path towards CBDC as follows: “A CBDC is an important, viable and advantageous step towards sovereign money.”
The preliminary groundwork has been done. Now it is up to politicians to swiftly make the necessary decisions to improve our monetary system.
Image: © positivapengar