Norway’s central bank, Norges Bank, has endorsed the European Union’s Markets in Crypto-Assets Regulation (MiCA) as the nation assesses the benefits of launching its own central bank digital currency (CBDC). The initiative aims to improve financial stability in Norway and streamline cross-border transactions.
Kjetil Watne, project director for Norges Bank’s CBDC initiative, expressed support for MiCA’s regulatory framework, particularly as Norway is part of the European Economic Area (EEA). However, Watne noted that the bank might require additional measures to address risks in the decentralized finance (DeFi) sector and support overall financial stability.
Watne clarified that the bank has not yet finalized its decision on issuing a CBDC but is focused on identifying and closing regulatory gaps specific to DeFi.
How MiCA and a CBDC Could Benefit Norway
Norway’s alignment with EU regulations under the EEA includes closely tracking MiCA, a regulatory framework set to be assessed by the Norwegian Ministry of Finance. Watne noted that Norges Bank sees potential value in a CBDC for facilitating cross-border payments, though the mechanics of a CBDC-based international payment system are still under exploration.
In 2023, Norges Bank participated in “Project Icebreaker,” an experimental project aimed at testing CBDC frameworks for cross-border retail payments. Watne underscored that any CBDC issued by Norges Bank would complement, not replace, cash and that digital currencies would coexist with CBDCs rather than be phased out.
Addressing Privacy in CBDC Transactions
Watne highlighted Norges Bank’s careful consideration of privacy concerns surrounding CBDCs. He acknowledged that while digital transactions inherently produce digital records, Norges Bank is not responsible for tracking individual transactions. In alignment with the practices of other central banks, Norges Bank does not intend to monitor personal payment details or balances within CBDC systems. However, Watne noted that anti-money laundering and other regulatory requirements would still apply.
Potential Risks of MiCA for Banking Stability
MiCA is scheduled to take full effect on December 30, but some, including Tether CEO Paolo Ardoino, have raised concerns about potential systemic risks to the banking sector. MiCA mandates that stablecoin issuers hold at least 60% of their reserves in European banks, potentially increasing risk exposure. Ardoino pointed out that banks can loan out up to 90% of their reserves, which could make these reserves vulnerable in the event of a bank’s insolvency.
As Norges Bank evaluates its approach to a CBDC, it remains cautious of regulatory requirements that could affect the stability and resilience of Norway’s financial system.
