Swedish Central Bank Releases Report on Third Phase of CBDC Experiment

04/13/2023 11:05 • Digital Disruptors • 207 views

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, known as Riksbank, has recently released a report on the third phase of its Central Bank Digital Currency (CBDC) experiment. With the use of Distributed Ledger Technology (DLT), the report investigates the technical testing of CBDC to determine the extent of the involvement of payment providers and intermediaries like banks, and the use of programmable payments.

Phase Three of the Central Bank Digital Currency Experiment

The CBDC experiment began with the pilot phase and evolved into the second phase that tackled more in-depth technical requirements for CBDC. The third phase aims to extensively test the CBDC based solutions and involve payment providers and intermediaries such as banks. To determine these, the Swedish central bank is using the DLT to test the possibilities of technical solutions that are best suited for CBDC-based payments.

CBDCs and Payment Providers and Intermediaries

The involvement of payment providers and intermediaries is a critical component of the CBDC experimentation phase. One of the big questions in the experiment is about the extent to which banks will be involved in the development of CBDC-based solutions. Banks have always been the intermediaries of transactions, and if CBDC is widely adopted, it will disrupt the role of intermediaries like banks.
Riksbank believes that innovative solutions are essential for the deployment of CBDCs. In this experiment, the goal is to create an environment where payment providers and intermediaries are free to explore CBDC-based solutions that effectively reduce intermediation in financial transactions.

Programmable Payments and Cross-Border Payment Experiments

The third phase of the CBDC experiment also involves programmable payments. Programmable payments are payments that operate on pre-arranged conditions defined in smart contracts. Smart contracts automate the verification or execution of agreements, ensuring that payments are only made when specific conditions are met.
The CBDC experiment also involves cross-border payments, which are already a more common area for programmable payments. By integrating such functionalities into the CBDC, the Riksbank aims to improve the speed and efficiency of transactions between different countries.

Conclusion

In conclusion, the Swedish central bank’s CBDC experiment is a crucial step towards understanding the impact of digital currencies on the financial ecosystem. The third phase of the experiment is focused on technical testing using DLT, and it is aimed at achieving a balanced ecosystem that encourages innovation while safeguarding the interests of stakeholders. The integration of programmable payments and cross-border payments in the experiment will further enhance the efficiency of CBDC-based transactions.

FAQs

What is CBDC?

CBDC stands for Central Bank Digital Currency, a digital currency that is issued by a central bank like Riksbank.

Will CBDC replace traditional currencies?

No, CBDC is not designed to replace traditional currencies like fiat currencies. Its purpose is to supplement traditional currencies and provide a high degree of transparency and security.

What are programmable payments?

Programmable payments are payments that are executed based on predefined conditions defined through smart contracts. These contracts automate verification and execution processes, ensuring that payments are made only when specific conditions are met.

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