The Swedish Central Bank’s Third CBDC Experiment: Technical Testing Using DLT

According to reports, the Swedish central bank has released a report on the third phase of the Central Bank Digital Currency (CBDC) experiment, which involves technical testing using Distributed Ledger Technology (DLT). A key part of the experiment is about the extent to which payment providers and intermediaries such as banks should freely develop CBDC based solutions. In addition, the testing involves programmable payments and already disclosed cross-border payment experiments.

The Swedish Central Bank releases a report on the third phase of CBDC testing

The Swedish Central Bank has released a report on the third phase of its Central Bank Digital Currency (CBDC) experiment. The focus of this phase is technical testing using Distributed Ledger Technology (DLT). The experiment aims to study the extent to which payment providers and intermediaries like banks should freely develop CBDC-based solutions. Additionally, the report cites programmable payments and cross-border payment experiments as key components of the experiment.

Introduction

The rise of cryptocurrency has forced central banks worldwide to shift their focus to digital currencies. The Swedish Central Bank is at the forefront of this transition with its CBDC experiment. In this third phase, the bank focuses on the technical aspects of the CBDC and how it will interact with DLT.

The Extent to Which Payment Providers and Intermediaries Should Develop CBDC-Based Solutions

The Swedish Central Bank’s CBDC experiment aims to study the extent to which payment providers and intermediaries should freely develop CBDC-based solutions. The report notes that payment providers and intermediaries may develop innovative solutions that improve CBDC adoption, but this development may also pose risks.
The bank also notes the need to balance the speed of innovation with control and regulatory compliance. In contrast to traditional payment infrastructures, CBDCs require a new approach to regulation, including anti-money laundering (AML) and counter-terrorism financing (CTF).

Programmable Payments

The Swedish Central Bank’s CBDC experiment includes the testing of programmable payments. This involves the creation of smart contracts that automate payments based on specified conditions. For example, a smart contract could be programmed to release funds only when a specific event takes place.
The bank views the use of smart contracts as an opportunity to improve payment efficiency and reduce transaction costs. Programmable payments will be particularly useful for businesses, as they can automate recurring payments.

Cross-border Payment Experiments

The Swedish Central Bank’s CBDC experiment also includes the testing of cross-border payments. Cross-border payments are currently slow and expensive due to the presence of intermediaries like correspondent banks. Using CBDCs, the Swedish Central Bank aims to test the viability of faster and cheaper cross-border payments.
The bank notes that cross-border payments require a high level of interoperability between different CBDC systems. To achieve interoperability, there must be a standard for CBDC development and a common protocol for processing transactions.

Conclusion

The Swedish Central Bank’s CBDC experiment is a significant step towards a digital currency system. The third phase of the experiment focuses on technical testing using DLT, programmable payments, and cross-border payments. The experiment aims to address key issues, such as regulatory compliance, interoperability, and the role of intermediaries.

FAQs

1. What is the Swedish Central Bank’s CBDC experiment, and why is it important?
The Swedish Central Bank’s CBDC experiment aims to test the viability of a digital currency system that uses DLT. The experiment is important because it will help central banks worldwide transition to digital currencies.
2. What are programmable payments, and how do they work?
Programmable payments are payments that are automated based on specified conditions. For example, a smart contract could be programmed to release funds only when a specific event takes place.
3. What is the future of cross-border payments with CBDCs?
CBDCs have the potential to make cross-border payments faster and cheaper. However, achieving interoperability between different CBDC systems is essential to realize this potential.