Norway’s central bank is preparing for a future in which it might issue a digital currency amid a slump in cash usage in the country.
Looking into the possibility, a working group at Norges Bank has released a report titled “Central Bank Digital Currencies,” which explains that, as citizens turn away from physical forms of money, the bank must consider “a number of new attributes that are important for ensuring an efficient and robust payment system.”
Already, the country’s DNB bank has stopped handling cash, with Trond Bentestuen, group executive vice president of wealth management and insurance at the bank, telling local media as far back as 2016, that only 6 percent of Norwegians use cash on a daily basis.
Further, Jon Nicolaisen, deputy governor of Norges Bank, stated in a speech last April that the role of cash “continues to diminish” as consumers move towards electronic payments, adding that “For many consumers, electronic central bank money could provide an alternative to deposit money in a bank, as cash does today.”
The new report looks at various features and purposes for a CBDC and suggests some roles that “merit further consideration,” including as an alternative to deposits in private banks (in addition to cash); as a back-up solution for the standard electronic payment systems; and to provide a suitable legal tender as a supplement to cash.
Describing blockchain-based systems as “immature,” the report further explains that the preferred model for the CBDC would be either “account-based” – centralized and stored on a database – or “value-based” – decentralized and stored on electronic chips such as prepaid cards or SIMs.
However, the authors continue:
“A CBDC raises complex issues. There is virtually no international experience to draw on. Further analysis is needed to assess the purposes of a CBDC, the types of solutions that best achieve these purposes and the benefits measured against financial and other costs.”
The authors conclude that it is “too early” to conclude whether Norges Bank should take the lead and introduce a central bank digital currency. At the same time, the working group did not identify problems that would rule out the idea.
Norwegian krone image via Shutterstock