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Norges Bank explores possibility of introducing central bank digital currency
Norges Bank last week published a paper on central bank digital currencies (CBDCs) prepared by a working group set up by the central bank.
The working group has completed an initial phase of a study of CBDCs. The paper explores whether Norges Bank should issue CBDC and provides an overview of aspects that should be given weight in this consideration.
According to the paper, exploring the possibility of issuance of CBDCs has become more relevant due to technological advances and reduced usage of cash.
“Norges 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 primary purpose of a CBDC is to ensure confidence in money and the monetary system,” the authors wrote, adding that “e-money and crypto-assets are hardly viable alternatives in the near and medium term.”
Also, the authors said that the role of CBDCs would be more active in central banking areas such as providing credit to banks and funding bank lending.
Based on its research, the working group said that it is too early to conclude whether Norges Bank should issue CBDC, adding that it has also not identified issues allowing it to conclude ruling out the possibility at present.
“The working group has identified a number of factors that suggest caution, particularly in order to avoid conversion of bank deposits into a CBDC that is so rapid and so extensive as to impair lending,” the paper reads. “There is thus a need to examine the purposes of a CBDC and the most relevant solutions in more detail than permitted by the scope of this study. This will also make it possible to elaborate on the impacts of a CBDC and the cost-benefit analysis. This is planned for the project’s second phase.”
The concept of CBDC is being explored by major central banks, including the Bank of England, the Bank of Canada, and Riksbank, among others.