Norges Bank, Norway’s central bank, has endorsed the European Union’s Markets in Crypto-Assets Regulation (MiCA) as the country evaluates the potential adoption of a central bank digital currency (CBDC).
Kjetil Watne, project director for Norges Bank’s CBDC project, said in an interview with Cointelegraph that Norway, as a member of the European Economic Area (EEA), welcomes MiCA’s framework. However, he noted that the bank is still considering “whether additional regulations are necessary to promote financial stability.”
Watne explained that Norges Bank has “not yet decided” if it will issue a CBDC and is assessing how to “mitigate regulatory gaps related to decentralized finance.”
Related: EU MiCA rules pose ‘systemic’ banking risks for stablecoins — Tether CEO
Supporting MiCA and CBDC implementation
As part of the EEA, Norway closely aligns with EU regulations, including MiCA, which Watne said is “under public review and currently being assessed by the Ministry of Finance.”
According to Watne, Norges Bank considers CBDCs potentially useful for cross-border payments but that “it remains to be seen how a CBDC-based cross-border payment system would look.”
In 2023, the bank participated in “Project Icebreaker,” a trial exploring new architectures for retail CBDC transactions across borders. Watne added:
“We believe that an eventual CBDC will, if issued, will supplement and not replace cash. We also believe that digital currencies will continue to exist in parallel with CBDCs.”
Related: Norway town campaigns to close Bitcoin mine, electricity costs jump 20%
Addressing privacy concerns
According to Watne, Norges Bank has taken a measured stance on privacy concerns related to CBDCs, recognizing that digital payments “will leave digital taxes.”
He emphasized that Norges Bank “is not responsible for monitoring individual payment transactions” and noted that most central banks, including Norges Bank, do not plan to access customer CBDC payment details or account balances.
“Norges Bank’s analyses assume that this will be the path also for Norges Bank. As with other forms of payment, it will be necessary to ensure that relevant rules are complied with, for example anti-money laundering rules.”
Related: Norway passes data center legislation signaling more scrutiny for Bitcoin miners
Does MiCA pose “systemic” banking risks?
The EU’s MiCA regulation is set to take full effect on Dec. 30 and could introduce “systemic risks” to the banking sector, particularly for stablecoin reserves, according to Tether CEO Paolo Ardoino.
Under MiCA, stablecoin issuers will be required to hold a significant portion of their reserves, at least 60%, in European banks, creating a cause for concern when it comes to loans.
Ardoino explained that, due to banks’ ability to loan up to 90% of their reserves, the risks posed by MiCA regulatory requirements could create significant points of vulnerability for reserves if a bank holding them goes bankrupt.
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