By Sofia Fujiwara
As recently as October 20th, 2021, the cryptocurrency Bitcoin reached an all-time high valued at $66,974.77, further increasing the risk in interest for digital currencies as lucrative investment opportunities worldwide. With meme cryptocurrencies like “dogecoin” and parodic ones like the most recent “‘shiba inu coin”— risk managers are studying the opportunities and pitfalls associated with these new deregulated financial means of exchange.
How does cryptocurrency work?
Cryptocurrencies like bitcoin work using a so-called blockchain technology— a decentralized tool that manages transactions. In the case of bitcoin, the payer and payee’s identity remain confidential, with enticing elements such as one-click transactions and decentralized networks existing outside of central authorities making it appealing to individual investors. However, with such alluring qualities and a relatively new technology, come associated risks.
A weakness in the crypto-infrastructure includes the double-edged sword of a decentralized network. With no financial institutions involved in arranging and establishing deposits and debts, cases of fraud do not hold the same legal recourse as fraud victims. The modernity of cryptocurrency in contrast to traditional payment systems make it so that the ownership of cryptocurrencies are unenforceable in court, putting investors at risk of “crypto-jacking”. Critics of cryptocurrency also argue that this technology, besides being a fraud channel for criminals, enables money laundering, extortion and more— all in anonymity.
Is Sweden adopting a cryptocurrency?
Sweden is quickly becoming one of the least cash-dependent countries in the world, causing a rise in digital payments nation-wide (Global Data, 2020). Headlines stating that Riksbanken, or Sweden’s central bank is working to implement the e-krona as its own cryptocurrency are extremely misleading. Although the proposed e-krona shares the same basis of blockchain technology, the e-krona would be distributed and backed by a central bank, creating a state-issued digital krona. The Riksbank e-krona project started off in 2017 with the goal of the digital currency becoming a “digital complement to cash”. Essentially, the e-krona is presented as a solution to protect the Swedish krona from the increase of decentralized cryptocurrencies in a nation that is speedily becoming cashless. Additionally,in contrast to Bitcoin, an e-krona would not be a new currency on its own, but rather, be worth as much as a physical one-krona coin, assigning legal responsibility to Riksbanken to aim for an inflation target and secure developments.
Digital currency worldwide
While individual investors have thrived off of cryptocurrency gains, governments around the globe are dabbling with the possibilities and probable benefits of introducing digital currencies in their respective nations. While China and Sweden race to roll out digital currencies, the Bahamas is the only country currently having implemented a central bank digital currency (CBDC) termed the “sand dollar”— equivalent to the Bahamian dollar. The European Central Bank has also dangled the idea of a digital euro.
In recent news, El Salvador became the first nation to make bitcoin legal tender as a result of which bitcoin must now be accepted in exchange of a payment of debt ordained by law. However, this does not mean that businesses must accept bitcoin payments in exchange for goods or services, as it only applies to debts owed to creditors. As an incentive the El Salvadoran government will even award $30 to each individual who signs up for the national digital wallet “Chivo” to encourage prospective investors. Currently over 200 bitcoin ATMs have been installed that allow citizens to convert cryptocurrency into dollars, with the purpose of revitalizing the national economy.
In stark contrast, South Korea has exercised deeper control on the cryptocurrency industry in an effort to reduce illegal activities such as tax evasion and money laundering by introducing a capital gains tax, and acquiring all crypto platforms to register with the Financial Services Commission (FSC). From here it follows that in order to be approved by the FSC, platforms must require users to register their bank information as well as full names, eliminating the anonymity often associated with cryptocurrency. Both foreign and domestic crypto exchanges will also be screened by the Financial Intelligence Unit (FIU). While some misinterpret this as a ban, it is candidly South Korea’s way of regulating the market and decreasing crime by ensuring that trading platforms comply with the same legal regulations as other trading methods.
Although Riksbanken stresses that the e-krona is a “complement” to cash rather than a replacement, some see the e-krona as the government’s way of asserting its power over cryptocurrency. There have also been concerned discussions on the topic of citizen’s privacy on tracked payments, as well as disadvantages for those living in rural areas— i.a. the disabled and elderly. The effects of the e-krona on the Swedish economy, the role of the state, legislation, and the overall functionality of this digital payment market is still being investigated by Riksbanken to date.
Ultimately, whether the e-krona is adopted in Sweden or not will depend on the results of these investigations and political decision makers. Sweden taking the lead on digital currencies in the EU will have a strong influence on nations worldwide regarding the topic of state-owned digital currencies. For such a relatively new phenomenon, the socio-political implications remain unknown.