With the technologies developing and the world getting more and more digitized, the demand for introducing innovations like CBDC grows in most of the countries. Today everybody can easily notice a tendency of integrating central bank digital currencies (CBDCs) in domestic financial industries because of the many possible advantages. The main reason why everyone rushes to introduce this digital currency and may even switch to it is clearly the worldwide population of bitcoin. The creation of CBDC was mainly inspired by bitcoin which has become a cultural and financial phenomenon today, spread over the world, and gained unimaginably great success. However, CBDC is pretty much a different type of currency from cryptocurrencies which lack legal status from the state.
The country that is believed to be the first one that implements this new practice in Norway. Taking the look at the current financial situation of the country, it’s no surprise that using digital money can help the government overcome existing issues, avoid crises, and improve the financial environment. According to Bloomberg, nowadays the use of cash has drastically declined in Norway. People tend to stop paying with cash which is the main opponent of this digital currency and the main reason for this tendency is COVID-19 and related dangers of paying with physical money. In fact, as Norwegian central bank executives say, currently no more than 4% of the population uses cash and this is the major decline in the cash usage of all time throughout Norway’s financial history.
The share of cash payments in Norway is reported to be lower than in any other country which is why integrating legalized digital money may be beneficial for economics. The currency issued by Norges Bank, the central bank of Norway is the kroner which became volatile in the middle of the COVID-19 crisis. The problems of the national currency make the government revise the currency-related policies and as a result, implementing CBDCs is one of the hottest topics in 2020 for Norway and it is believed that this new type of currency can bring some innovation to the market and help it overcome existing challenges.
Although the discussions about creating the digital equivalents of national currencies are at the center of attention of many countries, like China, Sweden, or Denmark, there are certain reasons why Norway may be the first one to fully implement this new technology. Specifically, it’s probably all about low cash payments in Norway. Today almost everybody uses a plastic card or some form of other digital payment and especially, this is the case when it comes to online gambling in Norway.
The gambling industry in Norway today is pretty much thriving as a result of the strict regulations. Norwegians have official permission from the government to use cryptocurrencies in their taxation system. According to one of the most popular Norwegian gambling outlet media, the reason for the success of Norwegian casinos, or norske casinoer as they say in Norway, is probably very high crypto penetration. Bitcoin in Norway’s gambling industry is a huge success and considering the fact that central bank digital currency is very much like bitcoin, it’s highly likely that people will soon adapt to CBDCs as they are already used to making payments with digital money. However, CBDCs may be dangerous for cryptocurrencies, and if the country starts to officially use central bank digital currency, the government would need to make some revisions to the law in order to avoid controversy between these two types of currencies.
Advantages of CBDC
Many researchers have been trying to detect the advantages and disadvantages of CBDC. As this research suggests, the central bank digital currencies would have the potential to overcome some problems in the future of payment systems as cash usage is rapidly decreasing, presenting the risks for financial stability and fully changing the future of monetary policy. Particularly, CDBC has the potential to increase the economy’s response to the transmission of monetary policy. It can be used to charge negative interest rates in times of financial crisis when the cash costs a lot. This would result in true price stability as it’s predicted that CBDC will remain stable over time because of the broad consumer price index.
A more important benefit of introducing CBDC is obviously an almost costless medium of exchange. What this means is that if this digital currency was account-based, it would be possible to hold the accounts at the central bank or commercial banks via public-private partnerships. Using central bank digital currencies would also have the potential to stabilize the payment system in Norway which is very important because some large foreign companies try to take control of the local governments, making central banks concerned to increase the concentration of the payment system. But integrating CBDCs would help them to enhance the resilience of domestic payment systems.
Furthermore, CBDCs could provide a secure and liquid payment system supported by the government that doesn’t require even holding a bank account. Therefore, it will be easier and more convenient for everybody to make money transactions using CBDCs which is essential in today’s digital world where cash usage is progressively decreasing. But most importantly, it will have the potential to counter other digital currencies that are privately used. This is especially favorable for central banks because digital currency backed up by the state would probably help to prevent the adoption of privately issued currencies. The main problem with this is that privately issued currencies are hard to regulate but with Norway, it’s not a big problem if we take a look at how cryptos are regulated in the Norwegian market.
Because of these and many other advantages, implementing central bank digital currencies will be highly likely favorable for Norway and any other country that plans to keep in pace with new technologies and introduce digital forms of their national currency. The same tendency can be traced in China or in Sweden as both countries are so technology-friendly, however, because of the lowest cash payments, probably Nordics will be the first ones to fully apply this new policy to their financial market.