Central Bank Digital Money Won’t Replicate Cash,  Sweden’s Riksbank Says

It would be misguided to expect cash-like features of a central bank digital currency, according to one of the monetary authorities furthest ahead in exploring such a system.

Sweden’s Riksbank, which has done more research than most in exploring the feasibility of a digital currency, says users won’t be able to act anonymously in the same way they can with bank notes, according to a report published on Tuesday.

The finding touches on a key paradox. In order for a central bank digital currency to be cash-like, it would need to be both anonymous and usable off-line. But the technical construction of digital currencies requires that they be verified by a remote ledger, in order to avoid counterfeiting, compromising anonymity.

It would be wrong to assume that an e-krona will “function off-line and anonymously,” the Riksbank said.

The world’s oldest central is conducting a pilot study into the feasibility of a digital currency and is currently ahead of most of its peers across the globe in putting together a road map. Such a regime may have far-reaching consequences, and potentially even give central bankers access to a bigger toolbox with direct access to the money supply.

All central bank digital currencies will need a ledger that keeps track of ownership, regardless of whether such currencies are token-based, distributor-ledger technology-based or blockchain-based, according to the report, which was jointly authored by the payments department and research division of the Riksbank.

Most central banks (58%) exploring a digital currency appear to be opting for a token-based model, according to the Riksbank, which cited a 2020 survey by centralbanking.com. Its research so far suggests that token-based digital currencies appear to be “no better in achieving cash-like properties” than those based on accounts.

In a report last year, Riksbank said tokens are “bearer instruments and represent in themselves ownership of a monetary value,” while an account-based digital currency can be compared to deposits as it shows ownership of a monetary balance in some form of financial intermediary or the central bank itself.

©2021 Bloomberg L.P.

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