## 1. Cash in Circulation and Mobile

## Source details

**Canonical URL:** [1. Cash in Circulation and Mobile](https://www.imf.org/-/media/files/publications/cr/2021/english/1sweea2021002.pdf)

## Other formats

- [Markdown version](/-/media/files/publications/cr/2021/english/1sweea2021002.pdf.md)
- [Structured JSON version](/-/media/files/publications/cr/2021/english/1sweea2021002.pdf.json)

---

### Context
- Cash-to-GDP ratio: currently at around 1.3 percent of GDP, down from 3 percent of GDP in 2010.
- Recent Riksbank surveys: almost 75 percent of respondents withdraw cash less often than once a month, if at all.
- Two-thirds of Swedish retailers would no longer accept cash by 2030 (survey-based estimate).
- Drivers of cash decline:
  - Introduction and usage of Swish (a popular mobile payment system).
  - Refusal of some businesses to accept cash.
  - Withdrawal of central bank subsidies of cash distribution (with plans to roll this back).
  - A changeover of banknotes.
  - High levels of digitalization in society and the banking sector.
- Payment landscape: proliferation of private digital payment providers, some foreign; payments operated by private providers.
- Riksbank action: e-krona project started in 2017; pilot is a proof of concept to propose a design to reap benefits and mitigate risks.
- International context: other central banks exploring retail CBDC (examples cited include ECB, People’s Bank of China, US Federal Reserve, Central Bank of the Bahamas).

### Main Benefits (Riksbank-identified motivations)
- Five main motivations:
  - Promotion of competition and innovation in payments markets: e-krona could help ensure competition given network externalities prone to monopolistic behavior.
  - Safeguarding against substitution of the krona by global stablecoins: could discourage use of such digital currencies and protect monetary sovereignty, financial stability, and integrity of the financial system.
  - Creating an inclusive payments system: e-krona could cater to those unable to use private digital payment services due to age, disability, or denial of access by operators.
  - Crisis preparedness and resilience: e-krona could safeguard continuity of the payments system if cash usage is no longer an option and privately owned systems are disrupted.
  - Continued access to central bank money by the general public: e-krona would be state money akin to cash and available to the general public.
- Forward-looking assessment:
  - Present benefits may be limited but could increase as cash usage falls further and reliance on private/foreign operators and global stablecoins grows.
  - The e-krona could be seen primarily as an insurance mechanism given Sweden’s advanced payment-market technologies and current resilience.
- Additional potential benefits:
  - First-mover advantages for Sweden.
  - DSGE-model finding: country without CBDC may have reduced monetary policy autonomy versus a country with CBDC (Minesso Ferrari et al., 2020).
  - Could facilitate distribution of fiscal stimulus via potential G2P payments to households.
- Alternatives to capture some benefits without CBDC:
  - Reduce cost of cash usage, introduce de facto requirement to accept cash, and regulate private payment means and digital currencies (standards for business continuity, regulation of fees).
  - Proposed Riksbank Act would increase Riksbank responsibilities for cash distribution; cost reductions passed through could slow decline of cash usage, though reversal may be difficult.

### Main Risks
- Two interrelated financial stability risks:
  - Bank disintermediation: deposits increasingly converted to e-krona could shrink banks’ funding base, forcing reliance on wholesale funding or higher retail deposit remunerations, undermining credit supply and profitability.
  - Digital bank runs: easier and faster conversion of deposits into e-krona during crises could increase the likelihood, speed, and severity of runs.
- Mechanisms and implications:
  - Higher demand for CBDC raises central bank liabilities, possibly forcing acquisition of more interest-bearing assets (government or private bonds), raising governance issues as more credit intermediation occurs through the central bank.
  - Deposits can be withdrawn in crises via transfers to other banks, National Debt Office savings accounts, conversion to cash, or safe assets including government bonds; converting to e-krona could be a new, faster avenue.
- Assessment of likelihood:
  - Financial vulnerabilities from bank runs assessed to be generally small under present conditions; deposit insurance and Riksbank lender-of-last-resort role are well established.
  - Historical note: even in 2008, despite classification as a systematic banking crisis in Sweden, there was no widespread transfer of bank deposits into National Debt Office accounts.
- Monetary policy implications:
  - A non-interest-bearing e-krona without caps could establish or raise the effective lower bound, constraining monetary policy.
  - Compared to bank deposits, e-krona can more readily be subject to negative interest rates (not possible for physical cash).
- Other risks:
  - Reputational risk to Riksbank if technical safeguards against cyberattacks/digital robberies are insufficient.
  - AML/CFT risks if anonymous transactions are feasible; FATF requires identification for cumulative electronic payments above €150.
  - Large movements in capital flows if swings in external demand for CBDC occur and transaction costs in international capital markets fall.

### Design Issues
- Riksbank guiding design principles (BIS, 2020):
  - (i) not compromise monetary or financial stability;
  - (ii) need to coexist with and complement existing forms of money (exchangeable one for one for cash or bank money);
  - (iii) promote innovation and efficiency.
- Pilot architecture:
  - Testing a decentralized ledger technology-based architecture.
  - Network is private (permissioned) and fully controlled by the Riksbank.
  - E-krona issued by the Riksbank to banks or similar institutions (“participants”) who distribute e-krona to end-users; no direct contractual relationship between end-user and Riksbank.
  - Participants verify end-user identity, helping mitigate AML-related risks for the Riksbank.
  - Pilot will evaluate ability to simultaneously implement key technical features: (i) convenience; (ii) security and resilience; (iii) ability to quickly process a large number of transactions; (iv) interoperability with other means of payments; (v) flexibility and adaptability.
- Legal considerations:
  - Need for strong legal foundations authorizing Riksbank to issue CBDC.
  - Question of whether e-krona will be considered currency under law and whether to give it legal tender status; this may necessitate legal adjustments.
  - Entities offering transfer, storage, or custody of e-krona should be held to equivalent regulatory and prudential standards as firms offering similar services for cash or existing digital money.
- Specific economic design choices under evaluation:
  - Renumeration and caps on holdings:
    - Non-interest-bearing e-krona without caps could raise the effective lower bound and increase financial stability risks.
    - Interest-bearing e-krona could ease the lower bound constraint, especially if cash declines.
    - Caps on individual holdings and/or an interest rate on e-krona set below deposit rates could limit substitution of bank deposits.
    - Variable spread between key policy rate and e-krona, tiering interest rates by volume, or caps on holdings would create additional complexity.
    - Example: Bahamas’ CBDC subject to different caps on monthly transactions depending on degree of identity verification and KYC requirements.
  - Accessibility and cross-border usability:
    - Determines whether nonresidents will transact in e-krona if legally allowed access.
    - Cross-border use could lower transaction costs and increase seignorage revenue, but swings in external demand could drive large capital-flow movements and complicate KYC.
  - Cost of issuance and usage:
    - Issuing e-krona entails upfront capital and recurring costs for Riksbank; retailers may incur infrastructure investment.
    - Subsidies from Riksbank could prevent end-users from bearing costs and incentivize usage.
    - Depending on usage and Riksbank balance-sheet expansion, seigniorage revenue could help offset costs; the size of costs and subsidies remains uncertain.

### Key Findings and Remaining Design Issues
- Key Benefits:
  - Promotion of innovation in payments markets.
  - Safeguarding against substitution of the krona by global stablecoins.
  - Promotion of an inclusive payments system and universal access to digital public money.
  - Crisis preparedness and resilience.
- Key Risks:
  - Bank disintermediation.
  - Digital bank runs.
  - Undermining effectiveness of monetary policy.
  - Other risks: reputational-, cybersecurity-, AML-related, and capital-account-related.
- Key Remaining Design Issues:
  - Renumeration.
  - Caps on holding.
  - Usability for cross-border transactions.
  - Cost of usage.

### Benefits and Rationale (excerpted IMF staff analysis)
- The e-krona could provide substantial benefits to the Swedish economy, with some benefits only materializing over the medium to long run.
- Potential roles and indirect effects:
  - Insurance against unwanted side effects of further digitalization of the payments market.
  - Mitigation of effects from disruption, monopolies, substitution of the krona by global stablecoins, and exclusion of some individuals from payments markets.
  - Promotion of innovation in the public and private sectors.
  - Greater efficiency through digitalization.
  - An optimal e-krona design could increase the effectiveness of monetary policy.

### Risks, Design Considerations, and Policy Recommendations (excerpted IMF staff analysis)
- Key risks identified:
  - Bank disintermediation.
  - Risks to financial stability and monetary policy effectiveness if design is not appropriate.
  - AML/CFT risks.
  - Cybersecurity risks.
  - Reputational risks to the Riksbank.
  - Swings in capital flows.
- Design and policy responses recommended:
  - Calibrate renumeration and caps on holdings to balance reducing risks (e.g., bank disintermediation) while keeping the e-krona attractive and usable.
  - Retain Riksbank flexibility to set economic design parameters so it can act quickly to counteract any observed loss in deposits.
  - Assess the feasibility and desirability of increasing the Riksbank’s existing toolkit to safeguard banks’ lending capacity, which could be undermined in the future irrespective of the e-krona project.

### Adoption Strategy (excerpted IMF staff analysis)
- A clear strategy is needed to promote acceptance and adoption of the e-krona, especially given potentially high adoption costs.
- Issuance and existence alone may not ensure benefits will materialize because payments markets are subject to network externalities that make new entrants difficult to achieve broad use and acceptance.
- Empirical guidance:
  - The drivers and patterns of the rapid spread of Sweden’s mobile payment system Swish (as documented in Beaumont et al. (2019)) could provide important guidance for making the e-krona attractive as a payment instrument.

*Source: 1sweea2021002 - 1. Cash in Circulation and Mobile (International Monetary Fund, March 5, 2021).*

### 1. Cash in Circulation and Mobile

### 1. Cash in Circulation and Mobile

### Context
- Cash-to-GDP ratio: currently at around 1.3 percent of GDP, down from 3 percent of GDP in 2010.
- Recent Riksbank surveys: almost 75 percent of respondents withdraw cash less often than once a month, if at all.
- Two-thirds of Swedish retailers would no longer accept cash by 2030 (survey-based estimate).
- Drivers of cash decline:
  - Introduction and usage of Swish (a popular mobile payment system).
  - Refusal of some businesses to accept cash.
  - Withdrawal of central bank subsidies of cash distribution (with plans to roll this back).
  - A changeover of banknotes.
  - High levels of digitalization in society and the banking sector.
- Payment landscape: proliferation of private digital payment providers, some foreign; payments operated by private providers.
- Riksbank action: e-krona project started in 2017; pilot is a proof of concept to propose a design to reap benefits and mitigate risks.
- International context: other central banks exploring retail CBDC (examples cited in text include ECB, People’s Bank of China, US Federal Reserve, Central Bank of the Bahamas).

### Main Benefits (Riksbank-identified motivations)
- Five main motivations:
  - Promotion of competition and innovation in payments markets: e-krona could help ensure competition given network externalities prone to monopolistic behavior.
  - Safeguarding against substitution of the krona by global stablecoins: could discourage use of such digital currencies and protect monetary sovereignty, financial stability, and integrity of the financial system.
  - Creating an inclusive payments system: e-krona could cater to those unable to use private digital payment services due to age, disability, or denial of access by operators.
  - Crisis preparedness and resilience: e-krona could safeguard continuity of the payments system if cash usage is no longer an option and privately owned systems are disrupted.
  - Continued access to central bank money by the general public: e-krona would be state money akin to cash and available to the general public.
- Forward-looking assessment:
  - Present benefits may be limited but could increase as cash usage falls further and reliance on private/foreign operators and global stablecoins grows.
  - The e-krona could be seen primarily as an insurance mechanism given Sweden’s advanced payment-market technologies and current resilience.
- Additional potential benefits:
  - First-mover advantages for Sweden.
  - DSGE-model finding: country without CBDC may have reduced monetary policy autonomy versus a country with CBDC (Minesso Ferrari et al., 2020).
  - Could facilitate distribution of fiscal stimulus via potential G2P payments to households.
- Alternatives to capture some benefits without CBDC:
  - Reduce cost of cash usage, introduce de facto requirement to accept cash, and regulate private payment means and digital currencies (standards for business continuity, regulation of fees).
  - Proposed Riksbank Act would increase Riksbank responsibilities for cash distribution; cost reductions passed through could slow decline of cash usage, though reversal may be difficult.

### Main Risks
- Two interrelated financial stability risks:
  - Bank disintermediation: deposits increasingly converted to e-krona could shrink banks’ funding base, forcing reliance on wholesale funding or higher retail deposit remunerations, undermining credit supply and profitability.
  - Digital bank runs: easier and faster conversion of deposits into e-krona during crises could increase the likelihood, speed, and severity of runs.
- Mechanisms and implications:
  - Higher demand for CBDC raises central bank liabilities, possibly forcing acquisition of more interest-bearing assets (government or private bonds), raising governance issues as more credit intermediation occurs through the central bank.
  - Deposits can be withdrawn in crises via transfers to other banks, National Debt Office savings accounts, conversion to cash, or safe assets including government bonds; converting to e-krona could be a new, faster avenue.
- Assessment of likelihood:
  - Financial vulnerabilities from bank runs assessed to be generally small under present conditions; deposit insurance and Riksbank lender-of-last-resort role are well established.
  - Historical note: even in 2008, despite classification as a systematic banking crisis in Sweden, there was no widespread transfer of bank deposits into National Debt Office accounts.
- Monetary policy implications:
  - A non-interest-bearing e-krona without caps could establish or raise the effective lower bound, constraining monetary policy.
  - Compared to bank deposits, e-krona can more readily be subject to negative interest rates (not possible for physical cash).
- Other risks:
  - Reputational risk to Riksbank if technical safeguards against cyberattacks/digital robberies are insufficient.
  - AML/CFT risks if anonymous transactions are feasible; FATF requires identification for cumulative electronic payments above €150.
  - Large movements in capital flows if swings in external demand for CBDC occur and transaction costs in international capital markets fall.

### Design Issues
- Riksbank guiding design principles (BIS, 2020):
  - (i) not compromise monetary or financial stability;
  - (ii) need to coexist with and complement existing forms of money (exchangeable one for one for cash or bank money);
  - (iii) promote innovation and efficiency.
- Pilot architecture:
  - Testing a decentralized ledger technology-based architecture.
  - Network is private (permissioned) and fully controlled by the Riksbank.
  - E-krona issued by the Riksbank to banks or similar institutions (“participants”) who distribute e-krona to end-users; no direct contractual relationship between end-user and Riksbank.
  - Participants verify end-user identity, helping mitigate AML-related risks for the Riksbank.
  - Pilot will evaluate ability to simultaneously implement key technical features: (i) convenience; (ii) security and resilience; (iii) ability to quickly process a large number of transactions; (iv) interoperability with other means of payments; (v) flexibility and adaptability.
- Legal considerations:
  - Need for strong legal foundations authorizing Riksbank to issue CBDC.
  - Question of whether e-krona will be considered currency under law and whether to give it legal tender status; this may necessitate legal adjustments.
  - Entities offering transfer, storage, or custody of e-krona should be held to equivalent regulatory and prudential standards as firms offering similar services for cash or existing digital money.
- Specific economic design choices under evaluation:
  - Renumeration and caps on holdings:
    - Non-interest-bearing e-krona without caps could raise the effective lower bound and increase financial stability risks.
    - Interest-bearing e-krona could ease the lower bound constraint, especially if cash declines.
    - Caps on individual holdings and/or an interest rate on e-krona set below deposit rates could limit substitution of bank deposits.
    - Variable spread between key policy rate and e-krona, tiering interest rates by volume, or caps on holdings would create additional complexity.
    - Example: Bahamas’ CBDC subject to different caps on monthly transactions depending on degree of identity verification and KYC requirements.
  - Accessibility and cross-border usability:
    - Determines whether nonresidents will transact in e-krona if legally allowed access.
    - Cross-border use could lower transaction costs and increase seignorage revenue, but swings in external demand could drive large capital-flow movements and complicate KYC.
  - Cost of issuance and usage:
    - Issuing e-krona entails upfront capital and recurring costs for Riksbank; retailers may incur infrastructure investment.
    - Subsidies from Riksbank could prevent end-users from bearing costs and incentivize usage.
    - Depending on usage and Riksbank balance-sheet expansion, seigniorage revenue could help offset costs; the size of costs and subsidies remains uncertain.

### Key Findings and Remaining Design Issues (table synthesis)
- Key Benefits:
  - Promotion of innovation in payments markets.
  - Safeguarding against substitution of the krona by global stablecoins.
  - Promotion of an inclusive payments system and universal access to digital public money.
  - Crisis preparedness and resilience.
- Key Risks:
  - Bank disintermediation.
  - Digital bank runs.
  - Undermining effectiveness of monetary policy.
  - Other risks: reputational-, cybersecurity-, AML-related, and capital-account-related.
- Key Remaining Design Issues:
  - Renumeration.
  - Caps on holding.
  - Usability for cross-border transactions.
  - Cost of usage.

*Source: 1sweea2021002 - 1. Cash in Circulation and Mobile (International Monetary Fund, March 5, 2021).*

### 23.      An eventual launch of the e-krona could provide substantial benefits to the Swedish

### 23.      An eventual launch of the e-krona could provide substantial benefits to the Swedish

### Benefits and rationale
- The e-krona could provide substantial benefits to the Swedish economy, with some benefits only materializing over the medium to long run.
- Potential roles and indirect effects:
  - Insurance against unwanted side effects of further digitalization of the payments market.
  - Mitigation of effects from disruption, monopolies, substitution of the krona by global stablecoins, and exclusion of some individuals from payments markets.
  - Promotion of innovation in the public and private sectors.
  - Greater efficiency through digitalization.
  - An optimal e-krona design could increase the effectiveness of monetary policy.

### Risks and design considerations
- Key risks identified:
  - Bank disintermediation.
  - Risks to financial stability and monetary policy effectiveness if design is not appropriate.
  - Anti–money laundering and countering the financing of terrorism (AML/CFT) risks.
  - Cybersecurity risks.
  - Reputational risks to the Riksbank.
  - Swings in capital flows.
- Design and policy responses recommended:
  - Calibrate renumeration and caps on holdings to balance reducing risks (e.g., bank disintermediation) while keeping the e-krona attractive and usable.
  - Retain Riksbank flexibility to set economic design parameters so it can act quickly to counteract any observed loss in deposits.
  - Assess the feasibility and desirability of increasing the Riksbank’s existing toolkit to safeguard banks’ lending capacity, which could be undermined in the future irrespective of the e-krona project.

### Adoption strategy
- A clear strategy is needed to promote acceptance and adoption of the e-krona, especially given potentially high adoption costs.
- Issuance and existence alone may not ensure benefits will materialize because payments markets are subject to network externalities that make new entrants difficult to achieve broad use and acceptance.
- Empirical guidance:
  - The drivers and patterns of the rapid spread of Sweden’s mobile payment system Swish (as documented in Beaumont et al. (2019)) could provide important guidance for making the e-krona attractive as a payment instrument.

*Source: IMF staff analysis (excerpted content unit).*

---


_Source: https://www.imf.org/-/media/files/publications/cr/2021/english/1sweea2021002.pdf_