Central banks in both Great Britain and Norway have recently published information regarding their research into integrating decentralized currencies into their own central banking systems. Seeking to eventually find a way to issue the cryptocurrencies through their own central banks, the countries’ central banking authorities seem interested in riding the wave of public interest associated with blockchain-based alternative forms of payment.
Despite the optimistic efforts, it is clear that not all within the governments of Norway and England are in favor of the bold move; some officials have come out against the concept of central embrace of the decentralized currencies, nodding to possible negative “macroeconomic consequences” resulting from adoption within the traditional economic system of their country.
Norway Considers Central Bank Crypto-Adoption
The move is not unprecedented. It comes, in large part, as a response to declining value of Norwegian fiat currency. The report published by the central bank outlined that the decline in both value and interest in using fiat currency has “made us think” about the prospect of implementing a “central bank-issued digital currency.”
The bank outlined three unique purposes that would make a central bank digital currency possible and useful. Promising a low-credit alternative to traditional fiat currency, functioning as an independent backup to the original banking system, and guaranteeing a “suitable legal tender” to “supplement” the existing cash deficit in the country.
However, the bank has been clear that no official decision on the matter has been reached—at least not yet. The report elaborates that it is “too early to conclude” whether the bank will adopt the creation of a digital currency, and that the decision will depend on the consideration of “complex issues” and an extensive “cost-benefit analysis.” Further complicating the decision is the fact that there exists “virtually no” global precedent for the prospect.
One important note for cryptocurrency enthusiasts: the bank has expressed interest in some sort of bank-issued currency, but it has not yet mentioned the prospect of adopting any kind of existing cryptocurrency. Additionally, it is unclear whether the country would be interested in the application of existing blockchain technology when fortifying this transitional potential economic system.
English Central Bank and Cryptocurrency
Great Britain’s central bank, the Bank of England, has taken even more concerted steps on the path to the potential establishment of bank-issued digital currencies. In their working paper on the subject, the major bank has presented three potential models that would allow the bank to establish a stable digital currency.
The first model is known as the “Financial Institutions Access” model, and it is marked by its limiting of access to the digital currency to financial institutions like banks and other public economic organizations.
Second, the “Economy-Wide Access” model expands central bank-issued digital currency access to both “households and firms.”
The final, and most complicated, propositional system is known as the “Financial Institutions Plus CBDC-Backed Narrow Bank Access” model. This complex option would limit the access of these currencies to banks and non-bank financial institutions, but will additionally would establish a “narrow bank.” This institution would function as an economic anchor; it will be a “financial asset to households and firms,” but will be unable to “extend credit.”
This third option seeks to provide economic entities with the opportunity to subvert the risk of a financial institution associated with lenders and borrowers through the implementation of a no-credit and stable system.
Not all major governments are interested in the prospect of Central Bank-Issued Digital Currencies. For example, the Governor of the U.S. Federal Reserve voiced her deep opposition, explaining that serious “operational challenges” preclude immediate implementation of any long-term CBDC system.
Additionally, she voiced concerns that such a system would facilitate the creation of a “global target” for both cyberattacks and easy money laundering. The financial figure emphasized in her comments that the coexistence of this new paradigm with the traditional central banking model could compound stress on an economic system which is already in trouble.
As the debate surrounding institutional adoption of Central Bank-Issued Digital Currencies continues, moves by British and Norwegian central banking authorities are of special interest to the evolving cryptocurrency community.