Norway is stepping up its efforts to make a national digital currency in the form of CBDC a reality. After years of research, the Central Bank of Norway now wants to bring its own Central Bank Digital Currency CDBC to life in the next two years. During these two years, other different technical solutions will be tested. Norway is thus taking on a pioneering role in Europe.
Norway with first CBDC in Europe?
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Norges Bank, the central bank in Norway, officially announced on Friday that it will intensively test various technical solutions for the realization of digital central bank money within the next two years. The move comes on the recommendation of an internal working group.
- The working group believes that the motivation for researching CBDCs has been strengthened. Many central banks are in the process of conducting similar research, and some have already started technical tests.
- According to the announcement, Norges Bank has already been in the research of digital central bank money for four years.
- The head of Norway’s central bank, Øystein Olsen, did not seem that interested in developing CBDCs in the past. According to a June 2019 statement, it was said that they “raise complex issues.
But even then, he indicated that further research and testing were to be conducted. They should reveal whether “promoting a safe and effective payment system” is appropriate and “ensuring continued confidence in the monetary system.”
Two years later, the skepticism and caution seem to have faded somewhat. And apparently, the research has yielded useful things to legitimize further testing.
Central bank money provides the payment system with a number of important features that should be maintained and enhanced through the issuance of a CBDC. Additional background knowledge is needed to decide whether issuing a CBDC makes sense.
Going cashless in the land of fjords and trolls
Norway prompted the research for a central bank digital currency due to an extreme decline in the use of cash. As previously reported, Norwegians hardly use physical fiat money anymore. Only 4 percent of all transactions in Norwegian kroner take place in the form of coins and banknotes.
Adapting a digital counterpart to the current national currency would presumably go comparatively smoothly. Norway’s population is used to money in electronic form anyway.
Incidentally, the Scandinavian country is considered the most cashless in the world, closely followed by its neighbor Sweden. It is also the Swedes who want to do without cash 100% as early as 2023.
Bank publishes CBDC report
The bank also published a CBDC document on its already completed third trial phase and asked for feedback by June 25, 2021. The fourth technical research and trial phase is expected to last up to 24 months.
After that, the favored solution is expected to go into implementation. In the meantime, regulatory changes may also occur.
The Norges Bank report highlighted two potential technical directions. First, the solution as ledger-based, tokenized money. Blockchain and DLT were not mentioned separately, but similarities with cryptocurrencies could still be seen. The alternative path is an account-based solution that has similarities to e-money.
Regardless of which solution ultimately wins the vote, the bank emphasized the need to be “DLT compliant.” There is also strong interest in programmable money.
Overall, however, Norway is in no hurry to introduce an e-currency as soon as possible. Since 96 percent of all payments are cashless anyway, the country can continue to research and test the solution that works best for them. Consequently, it is not yet clear whether a CBDC will be developed at the end of the test phase or whether time will continue to elapse until the final launch.
Global efforts for CBDCs on the rise
Countries around the world are ramping up efforts to develop national digital currencies. Earlier this week, the Bank of England officially announced the start of preliminary CBDC trials that could lead to the creation of a digital pound – the ‘Britcoin’. Japan will also begin a testing phase regarding CBDCs in Q2 2021.
Sweden has been working on a pilot project for the digital version of the krona since the beginning of the year. Just at the beginning of April, the Swedish central bank published its report on the results of the 1st project phase. According to the report, the Riksbank said that the new CBDC technology needs to be further investigated, with scalability being a major weakness.The solution tested in phase one of the e-krona pilot met the performance requirements set in the public tender. However, this took place in a limited test environment, and the ability of the new technology to manage retail payments at scale needs further investigation and testing.
The central bank also pointed to some privacy challenges. In doing so, it emphasized that the information contained in an e-crona transaction must be protected to preserve banking secrecy and avoid the disclosure of personal information.
The world leader in the introduction of a digital national currency is China. Currently the world’s most populous country, it has already implemented real-world pilot projects in metropolitan areas around Shenzhen, Chengdu and Suzhou. Digital yuan could be won in a lottery and then spent at selected retailers. China had already been working on CDBC since 2014.
CONCLUSION – Norway joins other nations as CBDC pioneer
Norway is stepping up its efforts to introduce a digital central bank currency. After a 4-year test phase to explore the need and potential implementation options, the Norwegian central bank is now embarking on another research and development phase.
The next two years should provide insight into which solution is the most viable and secure. It remains to be seen whether the e-krone will make an immediate impact in Norway.
Globally, Norway is in illustrious CBDC company. China, Great Britain, Japan and Sweden are already working on possible solutions to realize their own digital national currency. China in particular is the most advanced in this process.