The Norwegian central bank, Norges Bank, released a working group report on digital currencies on Friday, May 18. The 55-page report covers the bank’s initial assessment of digital currencies, but more importantly sets preliminary use cases for digital fiat.
In particular, the working group sees three main directions for a central bank digital currency (CBDC). The report makes it clear that despite the shifts in how money is used and created, the role of a state central bank is unchanged as a guarantor of confidence in the currency and monetary system, and not as a replacement for commercial banks and lending institutions.
As such, the working group proposes that CBDCs be used primarily:
“To ensure a public and credit risk-free alternative to deposits in private banks, in addition to cash.
To function as an independent back-up solution for the ordinary electronic payment systems.
To ensure the existence of suitable legal tender as a supplement to cash.”
Furthermore, Norges Bank’s working group sets out other reasons to consider CBDCs. These include macroeconomic gains through lower taxes as some debt gets converted to CBDC and “increased monetary space” that might be helpful as the use of material cash declines. However, the authors point that these arguments have little relevance to Norway (taxes) or require too much effort considering the outcome.
Regarding cryptocurrencies such as BitCoin, the working group does not see any threat to krone (the Norwegian currency) in the short to medium term. They point out that cryptocurrency strengths such as payment efficiency are not considered to be fundamental to a currency’s value, and that they have little effect on robust monetary systems [compared to the situation in Iran - ed.].
While the report issued by the working group is only the beginning of a discussion, Norway, like Scandinavia in general, is facing a decline in the use of cash. The working group points out that digital currencies are uncharted territory for every central bank, but something will need to be done to maintain confidence in the monetary system going forward.