Swedish CBDC head: The state doesn’t care how people pay for things

Mithra Sundberg takes the Orwellian nightmare aspect of her job seriously.

As the head of the Swedish central bank’s digital currency project, she knows how the idea of CBDCs rattles people. The internet is awash with people worrying that CBDCs will deepen the surveillance state by giving governments unprecedented insight into what people spend their money on.

While Sundberg understands why people are spooked, she tries to calm them. “Neither the state nor the central bank have any interest in looking at how people pay for things,” she told DL News.

“Privacy is an extremely important question when you’re talking about all types of digital monies,” Sundberg said.

No final decision of what the e-krona – the name for Sweden’s CBDC – could look like has been made, but Sundberg is adamant that proper rules about how data can be used, stored and handled will be established before the CBDC is unleashed into the wild.

“A good solution would be that the Riksbank won’t have any contact with the end-customer and that we work somehow through intermediaries, but who does what – that’s a question that remains to be answered,” she said. A similar approach has been suggested in His Majesty’s Treasury and the Bank of England’s recent consultation into a British CBDC.

However, Sundberg rejected the idea of a totally anonymous CBDC, citing anti-money laundering rules.

The e-krona project has been in the works since 2016 and has cost SEK118 million ($11.3 million) since 2019. Now, a crucial step towards the launch of the CBDC is coming in hot and fast.

The long-awaited government inquiry into Sweden’s payments industry will be published no later than by March 31. It will determine whether there is a need for the e-krona in the first place.

Sundberg remained unfazed about the prospect of the inquiry finding zero need for the CBDC.

“The matter of central bank digital currencies remains a topical subject, given everything that‘s going on around the world, so I believe it will remain a question high on the Riksbank’s agenda for some time still,” she said.

Long-time coming

The e-krona project is the central bank’s answer to Sweden becoming the most cashless country in the world. “You can barely use cash in Sweden,” Sundberg said.

Between 2010 and 2020, the percentage of cash used in payments in Sweden fell from 39% to 9%, Riksbank stats show. Cash is predominantly used for small payments and by the elderly. The pandemic supercharged this trend further, with Swedes increasingly ditching cash for digital and contactless payments partly to prevent the contagion.

Digital payments have become so ubiquitous that they have even muscled into popular vernacular. The word “swisha” translates to “to swish” in English and refers to sending money via the smartphone app Swish, launched by six large Swedish banks in 2012 and similar to how Monzo’s mobile payments work in the UK.

“If that trend continues, then we may not have a state-backed form of payment that is accessible to the public in [an easy] way,” Sundberg said.

Cecilia Skingsley raised similar concerns in November 2016 when the then-First Deputy Governor of Sveriges Riksbank delivered a speech at a fintech event. She believed Swedes ditching cash forced them to rely on private players to access state-backed money. “[I] don’t think that’s an acceptable situation,” Skingsley said.

That speech set off the Swedish CBDC project. Riksbank representatives spent the next year talking about the need for an e-krona, arguing it could create business opportunities for private companies and better prepare Sweden to respond to crises knocking out conventional payment infrastructures.

After over a year of preparatory research, Sveriges Riksbank officially launched a new division to explore how an e-krona could realistically work in 2018. The goal was to create a digital alternative to physical money that was safe and easy to use without putting people’s privacy at risk.

Sundberg, a two-decade veteran of the central bank, was hired to lead the new group. “It was too exciting not to be a part of,” she said.

Libra was ‘an eye-opener’

Sundberg said Sweden’s cashless-ness made it a CBDC trailblazer of sorts as few “countries had been confronted with the situation we faced.”

However, Facebook changed things in June 2019 when it unveiled Libra, a stablecoin developed together with a consortium of companies. That is when the international debate really kicked off. “Libra worked as an eye-opener for many people,” Sundberg said.

Politicians, pundits and market watchdogs worried about the prospect of mammoth private players launching a digital currency of their own. They worried it would jeopardise governments’ fiscal policy control and raised concerns over privacy risks. Facebook responded by renaming the project to Diem before quietly mothballing the project and then selling it to crypto-friendly bank Silverlake in January 2022.

Today, CBDC projects are everywhere. The European Central Bank’s digital euro, Beijing’s digital yuan and Nigeria’s eNaira are just three of the 124 active projects being explored around the planet, according to CBDC Tracker.

Long way to go

Sveriges Riksbank went into a more practical phase of the e-krona project in 2020 when it launched a pilot of the CBDC together with audit firm Accenture to test the concept. The tech titan had based the solution on R3′s Corda blockchain platform, which is marketed as a solution to build secure and reliable distributed ledger applications that protect people’s privacy. That version has been the foundation of the tests with market actors, cross-border payment tests between Norway and Israel and how an e-krona would work offline. Meanwhile, Norway’s CBDC prototype is built on Ethereum.

Sundberg emphasised that this version was only designed as a testing ground to better understand what the final version will require. How that version looks will also depend on who wins the next procurement round and if the government’s payments industry inquiry will say that there is a need for the solution.

“It’s still a few years away even if we’d get a decision pretty soon,” Sundberg said.

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For one thing, the government must decide if an e-krona should be introduced. That decision in itself requires more consultations and inquiries. Then it must be clear if the CBDC aligns with the reformed Riksbanks Act, and then the central bank must decide what final form the e-krona will take.

Sundberg will leave the central bank in May to join Finansinpektionen, the Swedish financial markets regulator. However, she is confident that the e-krona work will go on. “It will be full speed ahead even after I’ve left the ship,” Mithra said.