Swedish banks to launch digital currency, sparking debate

Swedish and European banks are preparing to launch a joint digital currency, aiming to revolutionize transaction speeds. The initiative, named Qivalis, involves 37 banks and plans to introduce a stablecoin pegged to the euro. This digital currency promises instantaneous transactions, available around the clock, across national and time borders.

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Stablecoin can give customers the opportunity for immediate transactions day and night across borders and time zones.

"Stablecoin can give customers the opportunity for immediate transactions day and night across borders and time zones," Benny Johansson, head of payments at Handelsbanken, told TT. The technology behind stablecoins is similar to that of cryptocurrencies like Bitcoin, but with a key difference: stablecoins are designed to maintain a stable value. This is achieved by private companies backing each issued stablecoin with a reserve of real assets, such as deposits, gold, or euros.

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If customers want to access stablecoin, they must go to a bank, which must constantly back the issued stablecoin with a reserve of real assets, such as deposits, gold, or currencies like the euro.

The move comes amid a changing global financial landscape. The European Parliament has also moved towards negotiating a digital euro, planned for release by the European Central Bank in 2029. Banks are reportedly accelerating their own digital currency plans partly due to developments in the U.S., where private entities have been authorized to issue dollar-pegged stablecoins. Experts warn this could lead to a "dollarization" of the market, increasing U.S. influence over the international monetary system.

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Stablecoin are not covered by deposit insurance or interest.

However, the introduction of private digital currencies is not without its critics. Sweden's Riksbank has voiced concerns, noting that stablecoins are not covered by deposit insurance or interest. There are also worries that banks might have less capital available for loans to businesses and individuals. Robert Bergqvist, a senior economist at SEB, acknowledged these concerns, stating that a loss of confidence in stablecoins could lead to customers demanding their real money back. If many try to withdraw funds simultaneously, it could stress the financial system.

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If the market loses confidence in stablecoin, customers want their real money back. Then we who have issued stablecoin must sell the assets. When everyone tries to do it at the same time, the financial system can be subjected to stress.