Norway’s fifth round of CBDC trials focuses on wholesale aspects

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Norges Bank, Norway’s banking regulator, has announced the completion of its fourth round of central bank digital currency (CBDC) studies. Still, recent results have dampened the enthusiasm for a retail CBDC.

In a 20-page report, the Norges Bank said the likelihood of conducting retail CBDC experiments could be higher due to the maturity of the local payment ecosystem. The report suggests that tokenized deposits could function similarly to a retail CBDC, and future experiments will focus on this offering.

Moving forward, the central bank added that it would be narrowing its focus on wholesale CBDCs to explore interbank settlements with tokenized deposits. Yet, after four rounds of tests, Norges Bank remains undecided over a potential CBDC launch but hopes that completing the fifth phase will gain further clarity.

The fifth round of CBDC studies, set to run till 2025, will focus on the technical standards and legal requirements of introducing a wholesale CBDC into the economy. Other deliverables for stage 5 include exploring a launch plan and a deep dive into use cases in securities settlement and tokenized deposits.

“The assessment of a CBDC raises complex issues, and the current payment system in Norway functions well, which is why we should not proceed with undue haste,” said Norges Bank Governor Ida Wolden Bache.

Despite a cautious approach, the central bank points to changing macroeconomic sentiments as a key reason to continue its CBDC experiments. The report lists certain conditions that should be present before the banking regulator proceeds to roll out CBDCs, including the widespread adoption of digital assets and stablecoins.

Other factors that may influence the central bank’s decision to float CBDCs include the prospect of BigTech payments dominating the local finance ecosystem, the dire risks of currency substitution, or the prospects of Norway adopting the proposed digital euro.

“Nevertheless, against the backdrop of falling cash usage, the emergence of new forms of money and payment platforms and work on CBDCs in other countries, introducing a CBDC is more relevant now than when the Bank’s research into this issue began in 2016,” said Bache.

International CBDC collaboration

In early 2023, Norges Bank entered into a joint study with the Bank for International Settlements (BIS) and the central banks of Sweden and Israel to explore the concept of a CBDC with cross-border payment functionalities. The Project Icebreaker experiment showed significant promise in a novel system that keeps CBDCs in their financial systems without the usual counterparty and settlement risks.

The experiment achieved stellar results by dividing an international transaction into two separate domestic payments, relying on foreign exchange providers to tender quotes to the CBDC system, with the system intuitively selecting the cheapest quote.

To learn more about central bank digital currencies and some of the design decisions that need to be considered when creating and launching it, read nChain’s CBDC playbook.

Watch: CBDCs are more than just digital money