Norway's Central Bank Examines Own Cryptocurrency Launch
A potential CBDC is considered as a supplement to cash, another way to make bank deposits, and an additional form of electronic payment
Norway’s central bank, Norges Bank, is considering developing its own cryptocurrency to “ensure confidence in money and the monetary system”, according to a working paper published on Friday.
“A decline in cash usage has prompted us to think about whether at some future date a number of new attributes that are important for ensuring an efficient and robust payment system and confidence in the monetary system will be needed,” Norges Bank Governor Oystein Olsen was quoted as saying in the document.
The report, prepared by a Norges Bank working group, investigates aspects they believe should be considered when assessing the issuance of a central bank digital currency (CBDC). The authors note three possible CBDC applications. First, a state-backed cryptocurrency will work as a supplement for deposits in the private banks. It will also be working like a “legal tender” again as an alternative to Norwegian krone. The third application concerns its usefulness as an independent backup solution for electronic payment systems.
Norges Bank is studying two CBDC models. One is the account-based model, in which accounts and transactions are under the authority of the bank, which is responsible for account-to-account transactions. The second is the value-based model, in which money is stored on debit cards or smartphone applications and then transferred from account to account without the bank's interference or knowledge.
This is just an initial level of analysis for knowing the potential of CBDC, the research group stated. “It is too early to conclude whether Norges Bank should take the initiative in introducing a CBDC. The impacts of a CBDC – and the socio-economic cost-benefit analysis – will depend on the specific design. The design, in turn, will depend on the purpose of introducing a CBDC.”
Norges Bank further noted in the paper that the introduction of CBDC should not hamper the normal credit lending processes of the banks and other financial institutions. The central bank emphasized they will be ready to provide cash when there is a need of it.
Other Central Banks Eyeing State-Backed Digital Currencies
The idea of issuing a government-backed cryptocurrency has been suggested by several countries, including Japan, UAE and Russia, but has so far fallen short of authorization by top officials and practical implementation.
In Europe, Sweden’s Riksbank has recently revealed that it is investigating the potential of an e-krona, which may help counteract issues arising from declining cash use and make payment systems more robust. Its inquiry is expected to be finalized in late 2019.
The Swiss government also requested on Thursday a report investigating the potential risks and benefits to issuing a state-backed cryptocurrency. The lower house of the Swiss parliament must now approve the request before it is moved on further.
Currently, there is only one cryptocurrency issued by a central bank and that is the Venezualian Petrocoin. The token, which runs on the NEM blockchain and is backed by barrels of oil, was launched in February and has since caused controversy in the country and abroad. The Petro has been deemed “unconstitutional and illegal” by President Nicolas Maduro's political rivals. In March, the US banned anyone in the country from taking part in the purchase or sale of the Petro.
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