Norway is ahead of the game when it comes to things like work-life balance and raising children. You can add to that commerce: Norway is the world’s most cashless country, according to its central bank, with just 4% of their payments made with cash and the majority made with contactless cards or digital wallets.
But even with this forward-thinking behavior, the country’s central bank is not recommending bitcoin as an alternative to fiat, or government-backed currency, because it’s “far too resource-intensive, far too costly and most importantly, it doesn’t preserve stability,” Oystein Olsen, the governor of Norges Bank, told Bloomberg.
Those who argue in favor of bitcoin, the largest cryptocurrency by market value, often say that it’s a hedge against inflation and the U.S. dollar – some bitcoin bulls even think it will eventually overtake the dollar as the world’s reserve currency.
However, Olsen does not agree.
“[T]he basic property and task for a central bank and central bank currency is to provide stability in the value of money and in the system, and that is not done by bitcoin,” Olsen told Bloomberg.
But because of the growing interest in cryptocurrency globally and the low level of cash use in Norway, Norges Bank deputy governor Ida Wolden Bache did acknowledge questions raised surrounding the creation of a central bank digital currency, or CBDC, in November.
A CBDC would differ from a cryptocurrency, like bitcoin, in many ways, but importantly because a CBDC would be issued and backed by a country’s central bank to compliment physical cash, rather than replace it entirely, and offer a more stable alternative.
Although Norway’s central bank is assessing the need for a CBDC, “[t]he prospective introduction of a CBDC is still some way off,” Wolden Bache said in November. “The lack of urgency reflects our view so far that there is no acute need to introduce a CBDC.”
While some, like the central banks of Sweden, China, Thailand, United Arab Emirates and Hong Kong, have started projects introducing CBDCs, others, like Norway and the U.S., are more hesitant. There are upsides to a CBDC, but there are also privacy and surveillance risks attached, for example.
In fact, Federal Reserve chairman Jerome Powell said during a virtual panel discussion on digital banking on Monday that the U.S. is in no rush to introduce a CBDC – “you can expect us to move with great care and transparency,” Powell said.
Like Olsen, Powell has a similar opinion of cryptocurrencies such as bitcoin.
“They’re highly volatile and therefore not really useful stores of value and they’re not backed by anything,” Powell said on Monday. “It’s more a speculative asset that’s essentially a substitute for gold rather than for the dollar.”
All in all, it’s fair to say that for most countries, the creation of a CBDC is a “likely” scenario, James Ledbetter, editor of fintech newsletter FIN and CNBC contributor, previously told CNBC Make It, as “thevast majority of central banks in the world have already been doing research on this.”
“Digital currencies more generally are the new wine, in many respects,” Olsen told Bloomberg, with “central banks entering the scene.”
He added, “I don’t think at the end of the day [bitcoin] will be a threat to central banks, although some people talk about that.”