Riksbank, the Swedish central bank, which is at the forefront of Central Bank Digital Currency (CBDC) research, has applied to parliament for authorization to host one of the BIS Innovation Hubs, it announced last week. Current legislation does not allow the central bank to finance an international organization, hence the need to change the law. The funding will be a maximum of 30 Million Swedish Krone ($3 million) per year.
While Riksbank has not made a decision to go ahead with a CBDC, it recently signed a contract with Accenture for a trial for a CBDC targeted at the general public. In part because of the very low rate of cash usage in Sweden, the Bank has been exploring CBDCs for years, and in 2018 was forced to deny it had concrete plans to issue one.
In the document submitted to parliament, the Bank states: “The marginalisation of cash is challenging both the role of the state in the payment market and the Riksbank’s ability to continue to uphold its mandate of promoting a safe and efficient payment system in Sweden.”
Referring to Facebook’s Libra, it says this project made it clear that central banks around the world need to cooperate to meet challenges and also take advantage of digitalization opportunities.
Riksbank is motivated to host a BIS Innovation Hub because it can provide a positive contribution based on its research and wants to remain at the forefront of innovation in fintech. The bank also noted there is considerable competition. The initial hubs are in Hong Kong, Singapore and Switzerland. Notably there is no EU representative. Even though Sweden is an EU member it is not part of the Eurozone.
Former European Central Bank Director Benoît Cœuré was appointed to head the BIS Innovation Hub last year. The Hub has three roles. As an extension of current BIS activities, it will identify critical technology trends affecting central banks. The second purpose is for collaboration between central banks. And the third role is to create new “central bank public goods” which it specified as the core financial infrastructure.
That doesn’t mean it plans to crowd out private sector innovation. But it plans for its innovations to spread benefits more widely.
Asking the question about whether central banks are suited to involvement in innovation, BIS Head of Research Hyun Song Shin stated: “we have a responsibility to be at the cutting edge of the debates. In fact, there is really no choice but to do so, as otherwise, events will overtake us.”