1. A proposal for a Smooth transition to Sovereign Money.
I will now present a proposal for a smooth transition to Sovereign Money and also show how E-kronas can be introduced in a stable way.
But first I need to visualise the workings of the current monetary system.
The Future of Money
Central Bank Digital Currency and Beyond
15 June 2019, Stockholm, Sweden
Lars Alaeus

2. Monetary system of today.
Assets
Liabilities
Equity
Banks
Liabilities
Assets
Equity
Riksbank
Liabilities
Equity
Assets
Bank money
Main tool: Policy rate Currently -0,25%
RIX
Here’s all of us. All legal persons in the society. Put yourself in this position.
And here’s your balance sheet.
To the left the value of your assets. To the right the value of your liabilities. Your debts.
The equity to the bottom right is what you get if you remove the value of your debts from the value of your assets.
Bank money
Money circulation.
Dual monetary system.
Policy rate to control the lending and thus the amount of money.
Higher policy rate give less lending and less money created.
Lower policy rate results in more lending and more money created.
CB-money

3. E-kronas in today’s system
Payments?
and interest?
=>
E-krona without interest.
E-kronas in today’s system
Immediate 24/7
Liabilities
E-krona
Assets
Liabilities
Assets
Transaction account
Between banks: 3 hrs up to 3 days.
Assets
Liabilities
Assets
Liabilities
RIX
Bank money
In the liability side of the balance sheet of the Riksbank instead of the commercial banks.
Accounted for by your own commersial bank. The same look-and-feel as your ordinary payments account.
Four types of Kronas.
Coins, notes, bankmoney and E-kronas.
Same value. Exchangable without restrictions.
What will be the consequences of no interest?
CB-money
Within a bank 24/7.
Immediate within working hours.
Equity
Equity
Equity 3

4. Riksbank emits new money
E-krona without interest
=>
The floor for the policy rate will be 0% instead of -1%.
In any case, a new tool is needed
No interest E-krona =>
Policy rate > 0%.
Citizens dividend
~200 SEK/month until 2% inflation
Liabilities
E-krona
Assets
Liabilities
Assets
Transaction account
Cash no interest.
=>
Policy rate > -1%.
Assets
Liabilities
Assets
Liabilities
Policy rate -0,25%
Bank money
Riksbank emitted money is needed to stimulate inflation when the floor stops the policy rate.
CB-money
Equity
Equity
Equity 4

5. Money transferred to E-krona accounts
Banks selling assets to pay Riksbank
=>
Less money, lower inflation and financial instability.
Liabilities
E-krona
Assets
Liabilities
Assets
Transaction account
Assets
Liabilities
Assets
Liabilities X
Bank money
CB-money
Asset
If the bank have not enough liquidity /money it has to sell assets and pay.
The money paid to the Riksbank disappears. The banks stability according to the liquidity regulation suffers.
Strange thing is: Deposits considered very stable according to liquidity rules???
As stable as very long-term borrowing. Deposits from the Riksbank are not regarded as stable according to the regulations.
Sell assets and pay =>
small scale: Less inflation,
large scale asset value depriciation, money disappears:
financial instability
Banks’ cost of financing:
Swedish banks today have very good credit ratings. Credit rating agencies are, however, open with the fact that Swedish banks' relatively high proportion of market funding is a negative factor in determining credit ratings. If credit ratings were adversely affected by an increased share of market funding, then all market funding will be more expensive.
E-kronas and liquidity regulation
Deposits from households and smaller companies are usually immediately available to depositors. In the liquidity regulations, however, such deposits are regarded as stable, as stable as very long-term borrowing. Deposits from the Riksbank are not regarded as stable according to the regulations, unless it takes place at least 30 days (for LCR) and 1 year (for NSFR), respectively. If the public withdraws funds from the commercial banks' accounts and switches to e-kronor, the commercial banks receive less liquidity and the Riksbank gets more liquidity.
The Riksbank's lending to the commercial banks must, however, take place without security, since the loans against collateral do not improve the commercial banks' liquidity according to the regulatory calculation method.
Question to analyse:
Is the Riksbank prepared to lend money for at least one year's term to the commercial banks, without the need for security, to an extent that means that the banks, as a result of sudden flows from bank deposits to e-kronor, do not risk breaching the NSFR regulations?
Risk of financial instability.
Shouldn’t deposits be considered unstable? Since they can be moved elsewhere anytime? But according to Swedish bankers Association, and the regulatorySuch deposits are considered very stable, as stable as very long-term borrowing.
Equity
Equity
Equity 5

6. Money transferred to E-krona accounts. The stable way.
E-conversion credit
replaces bankmoney.
=>
Financial stability.
No impact on inflation.
Liabilities
E-krona
Assets
Liabilities
Assets
Transaction account
>0%
Banks will raise interest rates. Few E-kronas will stay over night
Assets
Liabilities
Assets
Liabilities
Bank money
No security
For the banks it provides the same formal stability. In reality the stability is greatly improved with the e-conversion credit.
In a boom E-kronas will not make any difference.
In a regression E-kronas, together with E-conversion credit and citizens dividend will safeguard the monetary system.
So why is there a need for banking guarantees?
Lets explore what happens if they are removed.
Q from SBA: Is the Riksbank prepared to lend money for at least one year's term to the commercial banks, without the need for security, to an extent that means that the banks, as a result of sudden flows from bank deposits to e-kronor, do not risk breaching the NSFR regulations?
Yes!! Borrow from Riksbank with no security and no maturity time. But with an interest.
Same value, same interest and same stability rating.
Lender of last resort. But only when flow to and from E-kronas. To: banks can choose to accept a E-conversion loan. From: banks have to pay back E-conversion loan if any. This means that there will never be more E-conversion loan than there once were bank money.
No impact on the inflation == stable
Supporting the banks.
Central bank air-bag
E-conversion credit: no security and no maturity time.
Interest as for sight deposits.
Makes financial system stable when money flows
between bankaccounts and E-krona accounts.
Flexible lender of last resort.
Interest as for deposits in general X%
E-conversion credit
E-conversion loan
Equity
Equity
Equity 6

7. CB-money transforms to E-kronas Cannot compete with E-kronas.
The overnight transformation
What if all banking guarantees are removed?
A full Sovereign Money system is installed!
Liabilities
E-krona
Assets
Liabilities
Assets
CB-money transforms to E-kronas
Transaction account
E-krona
Bank money 0%.
Cannot compete with E-kronas.
Assets
>0%
Policy rate disappears.
Liabilities
Assets
Liabilities
CB-money
Bank money
Before transformation, according to the liquidity regulation, bank money was considered very stable. Equally stable as very long-term borrowing.
So bank money, deposits, made it possible for banks to t lend more and thus it was profitable to provide interest.
But after the transformation, deposits are not considered stable anymore and the banks cannot provide interest since they are not profitable anymore. And bank money will not be able to compete with E-kronas.
When this regulation is changed to real
All bank support are removed.
Deposit guarantee, lender of last resort, etc.
Liquidity regulation changed. Bankmoney is considered unstable.
A complete Sovereign Money system.
Bank guarantees are removed. Deposit guarantee, lender of last resort, liquidity rules according to reality.
The banks switch to e-krona. One monetary circulation. 24/7.
Money on bank account with no interest and not 24/7 will not be able to compete with e-kronas.
E-conversion credit
E-conversion loan
Equity
Equity
Equity 7

8. 30 years paying back the E-conversion credit
Asset values, debt levels and stock of money shrinks.
Stable financial system all the way.
Citizens dividend keeps inflation at 2%.
Liabilities
E-krona
Assets
Liabilities
Assets
Transaction account
E-krona
The interest rate is increased very little every day
Banks choose when to sell assets and pay back
Assets
Liabilities
Assets
Liabilities
The interest of the conversion liability is raised daily with a very small amount.
The banks choose themselves when to sell assets and amortize.
Money disappears => lower inflation
Compensated with new money distributed.
Inflation stays at 2%.
Gradually, very slowly:
Monetary supply shrinks.
Debt level shrinks.
Asset values shrinks.
E-conversion credit
E-conversion loan
Equity
Equity
Equity 8

9. After 30 years, no E-conversion credit.
What happend with debts and time deposits?
No change at all.
Except that banks do not create money anymore.
Liabilities
E-krona
Assets
Liabilities
Assets
Transaction account
E-krona
Assets
Liabilities
Assets
Liabilities
Time deposits
Riksbank handles the money supply.
The market balances the interest levels, debt levels and asset values.
The Fiscal policy handles the environmental issues without disturbance from an unbalanced finance sector.
After 30 years the conversion credit is paid back.
Asset values has been normalized.
And the economical gaps has shrinked since assets has lost the financial overvalue.
Debt X %
Loan X %
Equity
Equity
Equity 9

10. Thanks for your attention!