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Norges Bank assesses future form of money, considers digital currency concept

Norway central bank has joined the list of central banks that are researching the concept of digital currencies.

Speaking at Norwegian Academy of Science and Letters, Oslo, on 25 April 2017, Jon Nicolaisen, Deputy Governor of Norges Bank (Central Bank of Norway), discussed private digital currencies, increasing cybercrime, and future form of money, among others.

“A characteristic of private currencies such as bitcoin is the absence of any central institution backing the currency. But this is also a problem, making it difficult to establish the trust necessary for a widespread adoption of these currencies”, Nicolaisen noted.

Regarding future form of money, Nicolaisen said that one alternative that is currently being discussed is the “electronic central bank money”. He said that electronic central bank money could provide an alternative to deposit money in a bank for consumers, similar to cash.

“Banks can attract deposits through the interest rates they offer. But their ability to create money and extend credit could nonetheless be affected, especially if this new form of electronic money enters into widespread use”, Nicolaisen added.

Nicolaisen noted that private digital currencies can be used even if banks’ systems fail. However, he also pointed out that as these are not backed by any authority, the level of foreign exchange and credit risk can be high. He emphasized on the role of central banks to build confidence in the monetary system. Nicolaisen said that the monetary system cannot be left entirely in the hands of private entities, adding that there will be a role for central bank money.

“Norges Bank has begun the work of assessing what the future form of money should be. This is a long-term process. Whatever the conclusion, we can be fairly certain that banknotes and coins will be with us for many years yet. Deposit money in banks will most likely continue to be the dominant means of payment, even if electronic central bank money is introduced. Nevertheless, the very fact that these questions are being raised heralds a new era for our monetary system”, he added.

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