Norway Backs EU's MiCA, Considers CBDC for Financial Stability

In a recent move, Norges Bank, Norway's central bank, has thrown its support behind the European Union's Markets in Crypto-Assets Regulation (MiCA) as the country explores the possibility of launching a central bank digital currency (CBDC).

Kjetil Watne, the project director for Norges Bank's CBDC initiative, shared in an interview that Norway, as a member of the European Economic Area (EEA), aligns with the MiCA framework but is still assessing whether additional regulations may be needed to ensure financial stability. "We have not yet decided on issuing a CBDC," Watne stated, adding that the bank is studying how best to manage regulatory gaps associated with decentralized finance.

MiCA and CBDC Support in Norway

As part of the EEA, Norway maintains close alignment with EU regulations, including MiCA, which is now under public review by the Ministry of Finance. Norges Bank views a CBDC as a potentially valuable tool for cross-border payments, though the specifics of a CBDC-based system for international transfers remain to be determined.

In 2023, Norges Bank took part in "Project Icebreaker," a trial that explored cross-border CBDC transactions. Watne noted that any future Norwegian CBDC would likely supplement cash rather than replace it, suggesting that CBDCs and other digital currencies will likely coexist.

Privacy and Transparency Concerns

Addressing privacy, Watne emphasized that Norges Bank is committed to protecting individual transaction data, noting that it has no plans to access customer payment details or account balances. “Digital transactions will leave digital traces,” he acknowledged, stressing that any CBDC system would adhere to anti-money laundering laws and other relevant regulations.

MiCA's Potential Risks to Banking Stability

Set to take effect on Dec. 30, the EU's MiCA regulations could introduce new risks to the banking sector, especially for stablecoin issuers who will be required to hold at least 60% of reserves in European banks. Tether CEO Paolo Ardoino warned that this requirement could expose reserves to vulnerability if a bank were to face insolvency, as banks can lend out up to 90% of their deposits.

With Norway considering a CBDC and backing MiCA, the country’s central bank remains cautious, emphasizing the need for thoughtful regulations to ensure financial stability and privacy as digital currency adoption expands.