Norway is to launch a programme of technical testing for a potential central bank digital currency (CBDC).
The country’s central bank, which says the share of cash payments in Norway is ‘probably’ the lowest of any country in the world, is planning to examine various technical solutions for a digital Norwegian krone over the next two years.
Norges Bank is to undertake testing as well as ‘further analysis of the need for and the implications of’ introducing a CBDC, the central bank said in a statement. Its aims include identifying a preferred solution ‘if it becomes relevant’ to introduce a CBDC in Norway, the central bank said.
Norges Bank’s research into the increasingly high-profile topic has been ongoing for more than four years but it says introduction of a CBDC ‘will still lie some time in the future’.
Its update comes as the vast majority of central banks worldwide step up their explorations or experiments with digital money and focus intensifies on technological considerations.
Time for testing
Norges Bank’s working group on CBDCs has issued a 71-page report [Norwegian language – English-language version set to be published ‘as soon as possible’] – its third substantial report on CBDCs, with documents having also been published in 2018 and 2019. It has asked for feedback on the new publication by 25 June.
Bank representatives also delivered a webinar entitled ‘CBDC – Possible Technical Testing Strategies’ in November last year. A 14-page document released related to this webinar [available in English] stated that ‘one or more’ suppliers may receive financial support to develop prototypes or a pilot; ‘mini-competitions and hackathons’ may promote participation in a sandbox; and that external expertise may be used for modelling and simulation.
A Norges Bank spokesperson told Global Government Fintech this week that no external suppliers had yet been appointed but the bank “might co-operate with manifold suppliers and partners” during testing.
“The purpose of technical testing is to generate new knowledge on how solutions can deliver the characteristics of an eventual CBDC, and to uncover potential unintended consequences of relevant solutions,” the spokesperson added. ‘Unintended consequences’ referred to in the webinar document are ‘security’ and economic/financial stability effects. Separately, functionalities that could be addressed in the testing include the ability to enable offline payments.
‘Additional knowledge is necessary’
“Central bank cash provides the payment system with a number of important attributes that may be relevant to retain and develop further by issuing a CBDC. Additional knowledge is necessary for us to be able to decide whether issuing a CBDC is appropriate,” said central bank governor Øystein Olsen.
Olsen said a couple of years ago that CBDCs “raise complex issues”. In a statement issued in June 2019 he said that “we have little international experience to draw on” and that “more information is needed for us to conclude whether the introduction of a central bank digital currency is an appropriate measure for promoting a secure and effective payment system and ensuring continued confidence in the monetary system”.
This sentiment is reiterated in the new report, which also points out that a possible decision on the introduction of digital central bank money would require political support as well as potential legislative change.
Keeping up with the neighbours
Norway’s decision to start testing potential CBDC technical solutions follows the recent CBDC update given by its Scandinavian neighbour Sweden, which also has low levels of cash use.
The Riksbank has been working with Accenture for the past year, looking into the technical requirements of a potential e-krona based on blockchain technology. Earlier this month it released a report entitled ‘E-krona pilot Phase 1’, summarising lessons learned and next steps as it moves into a second phase of the pilot that will involve participants outside the Riksbank.
Although – unlike Norway – Sweden is a member of the 27-member European Union, it is not a member of the eurozone. The European Central Bank (ECB) is due to decide shortly whether to step up its technology explorations towards a potential digital euro.
Global Government Fintech last week (22 April) organised an international webinar, in partnership with Amazon Web Services Institute (AWSI), entitled ‘Delivering Central Bank Digital Currencies (CBDCs): Exploring the Technology Challenge’.