Denmark, a country where its population relies on cash less than most other European nations, is considering digitalizing its national currency. The central bank of Denmark is planning to issue its own Blockchain-based digital currency called e-krone as its reserve currency.
Lars Rohde, governor of the Danish central bank responsible for overseeing cash production within the country, stated that the government doesn’t have any interest in printing its own physical or fiat money in the near future. Rohde aims to outsource the production of Danish krone and hopes to replace cash with its independent financial network based on Blockchain technology.
Tracking e-krone
In an interview covered exclusively by Bloomberg, Rohde claimed that the challenges the Danish central bank currently deal with aren’t related to Blockchain technology or alternative FinTech technologies.
Rohde said: “We’re not preoccupied with the technology because we know that issue well.”
He further added that cash will not serve as an alternative to electronic payments:
“Cash and notes are not an alternative to electronic payments. We went beyond that many years ago.”
Instead, the major issue the central bank and Rohde are preoccupied with is the decision to make e-krone anonymous. At the moment, the bank believes e-krone should have a serial number, which will most likely be embedded onto its Blockchain network. The irrefutable and unalterable serial numbers of e-krone will enable the government to track the flow of its currency efficiently through a transparent ledger.
However, another problem that arises when failing to anonymize a currency is the inevitable outrage from the Danish people who expect to be provided with financial freedom and privacy. Rohde hasn’t decided yet if the central bank should monitor and track the transactions of its people.
Flaws
The Blockchain and digital currency concept of the Danish central bank are severely flawed when it comes to technical and cryptographic evaluation. Essentially, Rohde said that the central bank will issue e-krone to all the other commercial banks, acting as the creditor of the entire nation:
“All money held by Danes will eventually end up in the central bank in the event of a financial crisis, and we will indirectly end up doing a bailout because we become a creditor to all the banks.”
In this case, the Blockchain technology is not applicable to the concept of the Danish central bank, as structurally the Blockchain-based system cannot be established for the central bank to behave as a network moderator. If this happens, it can no longer be considered as a Blockchain network as it involves trust, centralized authority and leads to severe security concerns.
The Danish central bank is still far from figuring out the technical aspects of their digital currency if they do eventually decide to replace the nation’s entire monetary system.