The small Nordic nation of Norway might not be at the forefront of the global crypto scene, but it is taking an active role in the race to implement and trial central bank digital currencies (CBDCs). In fact, it was the first country to start work on a CBDC.
Recently, cashless payment options have been on the rise, while illegal cash-enabled transactions have become a concern. Banks in Norway have responded by eliminating their cash services, with Trond Bentestuen, an executive at the major Norwegian bank DNB, suggesting in 2016 that cash should no longer be used as a payment method in the country.
Nordea, another large Norwegian bank, followed suit the year before and only kept one branch in Oslo Central Station to manage cash.
At the same time, DNB allowed customers to buy Bitcoin (BTC) using its mobile app. Furthermore, local courts ordered drug dealers convicted to pay their fines in cryptocurrency, with local newspapers discussing the possibility of investing in digital assets.
Torbjørn Hægeland, executive director of financial stability at Norway’s central bank Norges Bank, is leading the project which aims to replace the use of cash in the country. According to Hægeland, the decrease in cash use and other structural changes in the payment system are key factors for the project.
The pilot phase of the Norwegian CBDC will last until June 2023, with Norges Bank releasing open source code to their Ethereum-backed digital currency sandbox in September 2022, allowing users to interact with testnet features. The second part of the code is yet to be released in the middle of the year.
Norway recently became part of Project Icebreaker, a joint exploration with the central banks of Israel, Norway, and Sweden on how CBDCs can be used for cross-border payments. The final project report is due in the first quarter of 2023.
The national regulatory context plays a large role in defining the hopes and fears of the Norwegian CBDC project. Norway is known for its cautious approach to the digital asset market, with high taxes and a relatively small capital funding of only $26.9 million according to the EU Blockchain Observatory.
Sander Andersen, a Norwegian serial entrepreneur, recently moved his fintech company to Switzerland and is afraid that the upcoming project will not coexist peacefully with the cryptocurrency industry. He believes that the tax burden digital companies face in Norway makes it nearly impossible to compete with companies based in more business-friendly jurisdictions.
In terms of privacy, Michael Lewellen, Head of Solutions Architecture at OpenZeppelin, commented that it is almost impossible to achieve from a strategic or technological perspective. He said that private stablecoins can technically trade and operate alongside CBDCs, but the introduction of a CBDC could lead to increased regulation and supervision of private stablecoins, making it more difficult for them to operate.
Lewellen added that CBDCs offer central banks the ability to better perform surveillance and enforce KYC rules, while enforcing the same standards against entities using non-government stablecoins is much more challenging.
