By Charles Duxbury

STOCKHOLM--Sweden's central bank on Wednesday opened a discussion about whether to introduce a digital currency to supplement cash as people here increasingly cut their use of coins and notes.

In a speech, Swedish Riksbank Deputy Governor Cecilia Skingsley said that as the use of cash is declining faster in Sweden than in most other countries, the Nordic state needs to be at the forefront of developing new payment systems.

The speech marks the start of what is likely to be a yearslong investigation into the feasibility of issuing digital money to private individuals, in the way central banks already do to commercial banks.

"The less those of us living in Sweden use bank notes and coins, the clearer it becomes that the Riksbank needs to investigate whether we should issue electronic money as a complement to the money we have today, " Ms. Skingsley said.

She said the central bank would now begin assessing the technological, legal and policy implications of such electronic money.

"This is something entirely new for a central bank and there is no precedent to follow," Ms. Skingsley said.

Private digital currencies such as Bitcoin aren't backed by central banks.

Among the main questions to be addressed would be financial stability, Ms. Skingsley said.

For example, she said the Riksbank was aware of the risk that depositors in commercial banks might move their savings into central bank electronic money in times of financial stress, something that could strain commercial banks' ability to ride out a crisis.

It also needs to be decided whether the money shouldbe booked in accounts or some form of digitally transferable unit that doesn't need an underlying account structure, roughly like cash, she said.

Over the last five years, cash withdrawals in Sweden have fallen by about one-third both in terms of number and value, according to a central bank report at the end of October.

This rapid change may mean the Riksbank will have to make a decision on the introduction of electronic money before any of its peers, Ms. Skingsley said.

Still, other central banks are already actively looking at the issue and might get there first.

The Bank of England published a working paper on the macroeconomics of central-bank-issued digital currencies in July as part of efforts to plot a way forward.

Ms. Skingsley compared the emergence of an electronic currency based on modern technology to the emergence of bank notes based on the printing press.

"The conditions are ripe for launchingmore electronic payment forms," she said.

Write to Charles Duxbury at charles.duxbury@wsj.com

(END) Dow Jones Newswires

November 16, 2016 07:00 ET (12:00 GMT)

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