E-krona: Europe’s CBDC early adopter

Ronald te Velde
Connective Payments, September 2022

Or click here to listen via your fav podcast platform, including Spotify, Apple Podcasts, Google Podcasts, Anchor and Amazon Music.

Cash is almost a thing of the past in Sweden

There are not many countries where cash has become as marginal as Sweden. Before the pandemic, someone who paid with cash was already looked at somewhat strangely or even suspiciously. As everywhere, corona took it a step further: now only a meager 9% of retail payments in Sweden are made with coins and notes. In 2018, it was expected that by 2025 only half of Swedish retailers would accept cash (1).

The lightning-fast substitution of public money for private money, and the increasing popularity of cryptocurrencies, have raised concerns about financial stability worldwide. In a recent article we analyzed the different motivations of central banks to investigate how a form of central bank digital currency (CBDC) might look like. Given that cash in Sweden is fast becoming something of a tourist attraction, it’s not surprising that Sweden is leading the way in Europe with the E-krona project.

E-krona timeline

The Swedish Riksbank already started a study in 2017 on how the E-krona could be issued to the general public:

E-krona technical infrastructure

Phase 2 of the E-krona pilot ended in February 2022. Although no final decision has yet been made on the underlying technology, the technical pilot was based on the Distributed Ledger (DLT) platform R3 Corda. That means the currency is represented with tokens in a blockchain. As with notes and coins, only Riksbank can create or destroy E-kronor. Each token is a uniquely identifiable digital unit, with a certificate proving that it was issued by Riksbank. Each token has a specific monetary value, which can vary from token to token. The total amount of money in circulation will remain the same and the Swedish krona will always have the same value in digital form as it does in physical money. Users can store e-kronor locally. They need a digital wallet for this. Payments require communication with the E-krona network.

Each token can only be used once. Once a token is used, it is recorded as consumed and the amount of money represented by the token is redisplayed in the form of one or more new tokens.

e-Krona transaction flow
Source: riksbank.se

Two-tier model

The distribution of CBDCs follows a two-tier model. This means that Riksbank distributes E-kronor to other parties participating in the network, such as banks and other payment service providers. They in turn distribute the currency to the general public. Each network participant has his own network node, with which he requests the E-kronor from Riksbank. Riksbank then creates the appropriate amount of digital currency, distributes it to the participant’s node and debits the amount to a settlement account linked to the participant.

Participants can then further distribute E-kronor to the digital wallet of end users via, for example, a mobile app or a card. End users can then use the E-kronor for transactions and exchange it for credits at a participating bank.

Two-tier model during the pilot

During this second pilot phase, Handelsbanken was involved as a bank, and Tietoevry as a supplier of the financial IT systems. For these participants, integrating an E-krona network with internal banking systems, as tested in the pilot, was not a major technical challenge, as long as existing industry practice is followed.

e-Krona phase 2 pilot structure
Source: riksbank.se

In the final report of phase 2, Riksbank explicitly writes that the solution developed within the pilot is intended to investigate possible technical solutions, and not for production. The pilot has provided more in-depth knowledge about how an e-krona network could work, but much is still uncertain. For example, the regulatory framework was out of scope for the time being, while this will of course partly determine the way in which the integration with the participants will work.


Now it’s up to politics: the Swedish parliament is aiming for a formal decision on the E-krona this year. Many more factors play a role here than just technical, however complex they may be. In our previous article we already pointed to the fundamental uncertainty about the degree of adoption by the general public. Is there a risk that commercial banks will face serious competition from the central bank, with negative consequences for liquidity and borrowing capacity? How can large sums of e-kronor be prevented from being hoarded? To what extent is an E-krona as privacy-friendly as its physical equivalent? Is an e-krona resistant to money laundering and other criminal practices? In addition to all these questions – and more – the question will undoubtedly also have to be answered to what extent Sweden wants to be one of the early adopters, with all the first mover risks that entails. For the time being, Swedish politicians cannot take an example from the ECB’s digital euro project. Rather, it is the other way around: the development of the digital euro is more than a year behind the E-krona (2).


(1) Andersson, Hedman and Segendorf (2018), “Cashless Society: When will Merchants Stop Accepting Cash in Sweden. A research model.”

(2) The ECB is currently starting a prototype phase, as part of the two-year investigation phase, and has selected five companies to develop potential user interfaces for the digital euro: CaixaBank for peer-to-peer online payments, Worldline for peer-to-peer offline payments, EPI for POS payments initiated by the payer, Nexi for POS payments initiated by the payee and Amazon for e-commerce payments. The prototype phase is expected to be completed in the first quarter of 2023.

Picture of Ronald te Velde

Ronald te Velde

Connective Payments
Growth Enabler | Managing partner
+31 657 343 406

More inspiring articles like this?

Subscribe to our quarterly Insights newsletter

Leave a Reply