In a staff memo published on Tuesday, Sveriges Riksbank said it sees potential benefits of a digital euro for Sweden. The bank emphasized the possibility of a more robust and competitive payment system.

The bank added that there may be a small shift away from traditional bank deposits. However, the Riksbank believes it will be limited from any impact due to the limitation of holding individual digital euros.

The use of digital euros could expand beyond the euro zone. Although designed for eurozone countries, one proposal would allow non-eurozone countries to potentially join the system by striking deals with the European Central Bank (ECB). This could give individuals and businesses in these countries access to the digital euro on an equal basis with euro zone residents.

The Bank of Sweden downplayed the impact of a potential deal, arguing that institutional factors could not “push out” the krona. First of all, he said, payments involving the government are made in Swedish krona, which solidifies the krona’s position as the primary currency.

“For example, since we pay our taxes in Swedish krona, we prefer to receive our salaries in Swedish krona. Businesses also prefer to pay their salaries, which are their main expenses, in Swedish krona and receive payments from their customers in Swedish krona,” Riksbank said.

Additionally, Swedes can use the digital euro even if they have not visited or lived in the euro zone before. Meanwhile, businesses in Sweden can accept payments in digital euros, but just like businesses in the euro zone, they must transfer them directly to a bank account.

The European Central Bank (ECB) started a two-year planning phase for the digital euro project at the end of last year. Its goals during this period include completing the rules, selecting private sector partners, and conducting tests and experiments.

According to the EU’s draft proposal, which may be revised before publication, the advantages of a digital euro are significant. On the other hand, the potential disadvantages of not having such a system can also be significant.

The draft rules give the ECB the power to limit how much money individuals can hold digitally. A possible limit of 3,000 to 4,000 euros is being discussed.

A potential disadvantage of the digital euro is that it could threaten the stability of the Swedish krona. High inflation can lead to price fluctuations. If this becomes an issue in Sweden, businesses may switch to setting prices in euros. People may also prefer to hold the euro, which is seen as a more stable currency, rather than the krona. This “flight to quality” can weaken the crown.

Moreover, the launch of the digital Swedish krona or e-krona decision depends on the development of the digital euro. According to the bank, if the digital euro is widely used, an e-krona could strengthen the position of the Swedish krona within Sweden.

Finally, leveraging the technology and regulations established for the digital euro could significantly reduce the cost and complexity of launching an e-krona. Finally, the coexistence of both digital currencies could lead to smoother cross-border payments.