Norway’s central bank is exploring the development of a central bank digital currency (CBDC). According to a report published on May 18 by Norges Bank, the digital currency would be an alternative to cash. The bank “will continue to issue cash as long as there is demand for it. But when cash usage declines, a CBDC can be an alternative to deposit money.”
The report cites “technological advances” and “reduced cash usage” as two main reasons why the bank is exploring a CBDC.
The authors write,
“An important trend in the payment system is a gradual decline in cash usage. Cash will be with us for many years to come. However, it is possible that, at some point, cash usage will be so low that it can no longer be considered a generally available means of payment. It is not Norges Bank’s aim to eliminate cash, either with the aid of a CBDC or in some other manner. The use of cash should be determined by demand.”
Regarding blockchain and issuing a cryptocurrency on a decentralized network, the central bank is circumspect.
“The technology is generally immature. – The systems, or at least those we have examined to date, offer far lower processing capacity and speed than modern centralised payment systems. New versions of the technology may offer improvements, but there is some way to go. – Open networks based on consensus through “proof of work” consume a disproportionate amount of energy, resulting in very high system costs. It is likely that this task could be performed more efficiently by a system incorporating a central administrator/owner. (In the case of a CBDC, this would be the central bank or an operator appointed by the central bank.)”
The report concludes that it’s too early to determine whether or not the introduction of a CBDC is the right move to make. A final decision will be based on a socio-economic cost-benefit analysis that takes into consideration how a CBDC would impact financial stability, monetary policy and the payment system.
Sweden and Switzerland are exploring similar initiatives to issue state-sponsored cryptocurrencies.
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