Central Bank Digital Currencies

Norges Bank | May 18, 2018

Norway’s central bank, Norges Bank, issued a white paper analyzing the factors to consider in issuing a central bank digital currency (CBDC). The CBDC white paper focuses on three possible forms of implementation in which CBDC would: (1) serve as an appendage for deposits in private banks; (2) be use as legal tender instead of cash; and (3) function as an independent source of digital payments.

“A decline in cash usage had prompted us to think whether at some future date a number of new attributes that are important for ensuring an efficient and robust payment system and confidence in the monetary system will be needed,” said Norges Bank governor Oystein Olsen.

The paper concludes:

It is too early to conclude whether Norges Bank should take the initiative in introducing a CBDC. The impacts of a CBDC—and the socio-economic cost-benefit analysis—will depend on the specific design. The design, in turn, will depend on the purpose of introducing a CBDC. The working group points in particular to three possible purposes, which require further analysis:

  • A credit risk-free alternative to deposit money.
  • An independent back-up solution for the ordinary electronic payment systems.
  • Legal tender, if cash can no longer be regarded as “generally” available, as legal tender is normally understood to be.

On the other hand, the working group has not identified issues allowing it to conclude at present that introducing a CBDC can be ruled out. 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.

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. A premise underlying this work is that the existence and scope of a CBDC must not impair the ability of banks and other financial institutions to provide credit.