Sweden, Norway and Israel team up on central bank digital currencies

3 Oct 2022

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A ‘first-of-a-kind experiment’ between several central banks will test the feasibility of digital currencies for cross-border payments.

The central banks of Sweden, Norway and Israel, along with the Bank of International Settlements (BIS), have teamed up to trial central bank digital currencies (CBDCs) for cross-border remittance and retail payments.

Known as Project Icebreaker, the experiment aims to develop a hub to which the participating central banks can connect their proof-of-concept CBDC systems to test key functions and the feasibility of the technology.

Sweden’s Sveriges Riksbank is working with Norway’s Norges Bank, the Bank of Israel and the BIS Innovation Hub Nordic Centre on the project.

Cross-border payments are often associated with high costs, low speed, limited access and insufficient transparency. Project Icebreaker aims to enable immediate cross-border retail and remittance payments using CBDC systems at a significant lower cost than existing systems, which typically involve payments being made through several banks.

As Sweden is going increasingly cashless, Sveriges Riksbank is currently investigating the possibility of issuing a CBDC called the e-krona.

“Sveriges Riksbank is collaborating in this experiment as part of the e-krona project,” said Mithra Sundberg, head of the e-krona division of Sveriges Riksbank.

“By interlinking our current e-krona platform, developed in a test environment, with the other countries we gain valuable lessons regarding cross-border payments using a CBDC. We also gain better understanding of important design and policy choices needed to secure cross-border functionalities if we decide to issue an e-krona.”

The e-krona is not the only digital currency concept that could benefit from Project Icebreaker.

“The results of the project will be very important in guiding our future work on the digital shekel,” said Bank of Israel deputy governor Andrew Abir.

“Efficient and accessible cross-border payments are of extreme importance for a small and open economy like Israel and this was identified as one of the main motivations for a potential issuance of a digital shekel.”

Project Icebreaker will run through the end of the year with a final report expected in the first quarter of 2023.

“This first-of-a-kind experiment will dig deeper into the technology, architecture and design choices and trade-offs, and explore related policy questions,” said Beju Shah, head of the BIS Innovation Hub Nordic Centre.

“These learnings will be invaluable for central banks thinking about implementing CBDCs for cross-border payments.”

European finance chief Mairead McGuinness said earlier this year that a bill to introduce a digital euro could be tabled in the EU early next year. Meanwhile, US president Joe Biden signed an executive order with a plan for digital assets in the country, including the potential for a digital dollar.

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Vish Gain is a journalist with Silicon Republic