The central bank of Norway is considering issuing CBDC while supporting the EU's MiCA regulation to ensure financial stability amid the developing cryptocurrency market.
Norges Bank, the central bank of Norway, has expressed support for the European Union's Digital Markets Act (MiCA) as the country actively studies the possibility of issuing a central bank digital currency (CBDC). This event occurs as the EU is working to establish a comprehensive legal framework for the cryptocurrency market, expected to be fully in effect by December 30 of this year.
Mr. Kjetil Watne, the CBDC project director at Norges Bank, in a recent interview, affirmed that Norway, as a member of the European Economic Area (EEA), welcomes the regulatory framework of MiCA. This indicates that Norway is striving to harmonize its monetary policy with EU regulations, while also demonstrating the country's commitment to building a clear and transparent legal environment for the digital asset market.
However, Mr. Watne also cautiously noted that Norges Bank is still evaluating whether it needs to add specific regulations to reinforce domestic financial stability.
The future of CBDC in Norway
Although supporting MiCA, Norges Bank has not yet made a final decision on whether to issue a CBDC. The bank is conducting thorough studies and assessments of the potential impacts of CBDC on the financial system, especially in the context of the rapid development of decentralized finance (DeFi).
Mitigating legal risks related to DeFi is one of Norges Bank's top priorities in this review process. According to Mr. Watne, the Norwegian Ministry of Finance is currently in the process of public consultation and assessment of MiCA to ensure compatibility with the country's legal context.
Norges Bank views CBDC as a potential tool to enhance the efficiency of cross-border payments. However, the specific shape of a CBDC-based cross-border payment system has yet to be clearly defined.
In 2023, Norges Bank participated in the Icebreaker project, an initiative to experiment with new architectures for cross-border retail CBDC transactions. The project shows that Norway is actively collaborating internationally to seek optimal solutions for the practical application of CBDC.
A notable point in Norges Bank's view on CBDC is the affirmation of its supplementary role, rather than a replacement, for cash. The bank also predicts that existing cryptocurrencies will continue to coexist alongside CBDC, creating a diverse monetary ecosystem. This perspective reflects Norges Bank's careful consideration to balance innovation and stability in the financial system.
The issue of privacy related to CBDC is also a particular concern for Norges Bank. The bank acknowledges that digital transactions will leave a digital trace and is committed to strictly adhering to regulations on personal data protection.
Mr. Watne emphasized that Norges Bank does not have the authority to oversee personal payment transactions, and most central banks, including Norges Bank, do not plan to access detailed information about customers' payments or account balances. This is to ensure user privacy and maintain trust in the CBDC system. However, compliance with anti-money laundering regulations remains a mandatory requirement for all forms of payment, including CBDC.