Norges Bank Supports MiCA as Norway Weighs CBDC Option
Norges Bank’s support for the European Union’s Markets in Crypto-Assets Regulation, or MiCA, puts it in line with wider European standards on cryptocurrency and digital assets. While MiCA offers a basic regulatory framework for Norway, further options to enhance financial stability and efficiency in cross-border payments are being considered with the CBDC.
Whetting Extra Regulations
Kjetil Watne, project director for Norges Bank’s CBDC initiative, in an interview with Cointelegraph, said that Norway has been closely following MiCA because it’s under public consultation by the Ministry of Finance. Being an EEA member, usually Norway adopts EU regulations. In any case, the bank is considering further regulation. Watne said that MiCA already provides a good regulatory foundation, but further regulation might be needed in particular to get a grip on DeFi-related risks and secure financial stability.
CBDC Could Provide Potential for Cross-border Payments
Among the key motivations driving Norway’s interest in CBDC are facilitating cross-border transactions. Watne said the final structure of any such CBDC-based payment system had yet to be determined, but the bank views CBDC as an area of promise in international payments. In 2023, Norges Bank took part in “Project Icebreaker,” a test together with other banks aimed at models of cross-border CBDC arrangements. It further underlines the proactive approach of Norway towards modern financial solutions.
Addressing Privacy and Regulatory Compliance
Norges Bank has been aware of the privacy issue in its consideration for CBDC. Watne said that all digital payment systems produce “digital traces” but stated that Norges Bank would not track individual transactions. Instead, the bank wants to balance the need to comply with AML regulations without compromising the privacy of users. Such a stance is no different from what other central banks do since they usually never give full access to customer payment information.
Systemic Risks of MiCA on Stablecoins
With MiCA just about to be enforced, there are emerging concerns over potential systemic risks to the banking industry, especially regarding stablecoin reserves. The MiCA will require stablecoin providers to hold a minimum of 60% of their reserves in banks within Europe. Tether Chief Executive Officer Paolo Ardoino warned that these might expose the reserves to high risk if one of the banks that holds them goes into financial crisis because of the high lending ratio in traditional banking.
Through the adoption of MiCA and continued consideration of a CBDC, Norges Bank aims to further enhance the robustness of Norway’s financial system during changing times in digital finance.
