Central bankers in Sweden are facing a growing concern as the percentage of all retail transactions involving cash has continued to decline. In 2016, only 15% of retail transactions used cash, down from 40% less than a decade ago, as customers have largely turned to mobile payment services. The same issue is taking place around the world, and it has prompted some governments and central banks to consider launching digital forms of fiat currency.

With the rising popularity of cryptocurrencies, many of these governmental agencies are wondering if a government-backed digital currency should bear similarities to the unregulated counterparts.

Digital Currencies Could Replace Cash

Although developers of digital currencies are likely to find central-bank supported cryptocurrencies to be an ironic anomaly, MIT Technology Review reports that a number of governments, including Sweden’s Riksbank, have looked into distributed-ledger technology as well as more traditional centralized methods to track and oversee digital currencies.

Economists who support the idea of a government-backed digital currency suggest that these projects would allow governments to quickly and easily issue digital tokens that function similarly to cash. The users of these coins would benefit from the anonymity of bitcoin, but they would also be guarded against volatility, hacks, and other issues that have troubled cryptocurrencies.

New Issues Would Emerge

However, shifting fiat currencies to the digital token space could also introduce a host of other problems. Rod Garratt, economics professor for the University of California, Santa Barbara, has suggested that these issues might include who would be responsible for verifying transactions and maintaining a distributed ledger. Without the natural bottlenecking that occurs when banks have to collect paper money for a series of withdrawals, citizens could empty accounts too quickly, bankrupting a central bank.

In response to this concern, the Bank of International Settlements suggests that central banks today are using obsolete programming languages and old databases for wholesale payments. Central banks in Canada and Singapore have explored how distributed ledger systems could be used to process clearing and settlement at the same time.

A bank-facing system that is not tied to consumers could potentially avoid the problem of clearance for citizens. The government of Dubai recently made headlines for launching the world's first state-sponsored cryptocurrency. (See more: Dubai Becomes First Government to Launch State Cryptocurrency.)

Still, the technology is a long way off from adoption, and other issues are likely to remain. In the meantime, countries like Sweden still face a growing problem as mobile payment systems take over. Those means of payment are often run by private companies, and the more power that they gain, the less control governments will have over how a country’s financial system works. In the end, it may come down to whether the public in a country like Sweden ends up demanding a cash-like way of paying for things with digital means. (See more: Sweden On Track to Be the First Cashless Society.)