Yesterday Norges Bank announced that its working group for central bank digital currencies (CBDC) has decided to start exploring technical CBDC solutions. While Norway is part of the European Union, it is outside of the eurozone and, like Sweden, maintains its own currency, the Norwegian krone.
Norway has been exploring CBDCs for four years and reckons that its cash usage is perhaps the lowest in the world. This combined with rapidly evolving payment technologies, is the spur to the new phase of research.
“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 Governor Øystein Olsen.
The bank also published a CBDC paper about its third phase explorations and asked for feedback by 25 June 2021. This new fourth technical experimentation phase is expected to last up to two years and will inform the decision on a preferred solution for further testing. In the meantime, there may also need to be legislative changes.
For its research, Norway is estimating the penetration of a CBDC at just 3% of GDP.
Its report highlighted two potential technical directions. One was ledger-based tokenized money. While blockchain and DLT were not explicitly mentioned, it was seen to have common features with cryptocurrencies. The alternative route is an account-based solution that has similarities to e-money.
However, no matter which route is chosen, the Bank emphasized the need to be “DLT compliant” and there’s a strong interest in programmable money.
The paper stated that open, decentralized systems such as public blockchains are currently too immature to support a CBDC. And hence if DLT is the route, it would be a permissioned blockchain. However, it can envisage a future where it’s possible to integrate CBDCs with a public blockchain which could become an ‘overlay’ ledger for services where a CBDC is integrated.
Meanwhile, in other recent CBDC news, the Bank of England has set up a joint CBDC task force with the UK’s Treasury. The eurozone published the results of its public digital euro survey. And China has moved into a more advanced stage of digital yuan testing, including experimenting with new kinds of wallets and cross border trials.