How Norway’s central bank is trying out its own digital currency
A cashless society may not seem so far away in the distant future. But the current digital alternatives such as cryptocurrencies have proved volatile, while the other blockchain assets, non-fungible tokens (NFTs), have fallen out of favour since their hype.A different approach to blockchain payments is gaining traction around the world. Central Bank Digital Currencies (CBDCs) are more stable, but unlike cryptocurrencies, they are centrally controlled by governments, more specifically central banks and are not seen as a way to invest money. While CBDCs and cryptos like Bitcoin may share the same blockchain technology, the biggest difference is that CBDCs are centralised and traceable, while cryptos are not.Several countries have launched their own CBDCs, such as Nigeria in 2021. In the eurozone, the digital euro is in its development phase, and elsewhere in Europe, Norway is in a testing phase.“The motivation for embarking on the study of CBDC is found in Norges Bank’s mandate, in particular, our task to promote an efficient and secure payment system. Of course, a well-functioning payment system in the domestic currency is also important for monetary and financial stability,” said Torbjørn Hægeland, Executive Director for Financial Stability at Norway’s central bank, Norges Bank.
‘With this background, the decline in cash use and other structural changes in the payment system are key drivers for the project,” he told Euronews Next.Another reason for exploring CBDCs, he said, is the public’s access to credit risk-free assets or a means of payment - and a contingency “if the electronic payment system breaks down at least as a last resort”.
The CBDC experiment
Norway’s CBDC project has been in the works since 2016 but there is no guarantee if it will actually be launched.
Hægeland said this experimental phase of trial and analysis will last until June 2023 and will “form the basis for our recommendation on how we should then go forward into an eventual next phase from next summer”.
The next phase would be to issue a recommendation on whether CBDCs are worth testing as a prototype. But Norway is also exploring cross-border CBDCs.
On September 28, Norway, Sweden and Israel’s central banks announced they were joining forces with the Bank of International Settlements (BIS) to explore CBDCs.
The project will delve into the technology needed and policy-related questions and aims to improve cross-border payments by reducing costs and improving speed.