February 4, 2023

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Facing very important road choices - E24

Facing very important road choices – E24

When Ida Wolden Bache first laid out Norges Bank’s strategy, digital central bank money, cryptocurrency and climate change are among the topics that demand special effort.

Areas of Effort: The new strategy builds, among other things, on experiences from the pandemic and the war in Ukraine, but at the same time makes special efforts on forward-looking topics such as digital central bank money, cryptocurrency, and climate change.
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Central Bank Governor Ida Waldenbasch presents her first three-year plan to the bank on Thursday. Among the heads of the Bank of Norway community message,community message,The central bank has three societal missions: price stability, high and stable employment, financial stability, well-functioning markets, and a safe and efficient payment system. Which involves low inflation, high employment, efficient payment systems and financial stability, and there is also room for private investment.

– There are some initiatives that we highlight that require a very special effort in the coming years. One of them is related to the design of the future propulsion system. There we face very important choices, she says in an interview with E24.

Over the next three years, Norges Bank will prepare for the possibility of an entry Digital central bank money.Digital central bank money.It should be able to give people access to a digital alternative to cash, where the value of money is guaranteed by the state rather than private banks

Can digital central bank money (DSP) become a reality in the next three years?

– It’s still early days for such a decision, but what we’re saying now is that we have to be ready to maybe be able to give it.

The central bank governor maintains that any potential entry in any case requires political entrenchment.

We are now at a stage where we are testing different technologies. The first step on the way to enable us to introduce it is to have access to a selected technology which, if deemed suitable, will be able to be tested.

A new form of money

The background of DSP is monetary usage in a free fall, accelerated by the Corona pandemic, and fear of competition from private cryptocurrencies after a strong increase in recent years. DSP will be an entirely new form of money and payment system, which will likely require a change in the law.

The vast majority of central banks in the world are now exploring DSPs and many are in the process of development or concrete trials.

– It is precisely in the interaction between testing technologies and fundamental questions of purpose and consequences of DSP that new questions may emerge, so analytical work will continue to be important in the future, says Wolden Bache.

She adds that they are very keen to follow developments at the international level, to gain knowledge and contribute to interaction.

Privacy, confidentiality and crime

There is a concern about DSP related to privacy and the authorities’ ability to monitor the use of funds.

– We are also interested in ensuring that it is well-established in democratic institutions, not least that solutions take care of the strict restrictions we place on sharing and obtaining information in a good way, says the central bank governor.

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– we Should Rest assured that we take care of your privacy, this is a requirement. And then there are some trade-offs there in terms of anonymity and crime prevention, for example. There are some options that I think are on the table of the political authorities.

Privacy and oversight are among the main issues with digital central bank money. Torbjørn Hægeland led the DSP working group, and privacy is clearly an important consideration.

Risk and reward in cryptocurrency

Increasing knowledge about cryptocurrencies is also part of the areas for investing in the future.

– We are particularly interested in the development to the extent that it can become a source of systemic risk. It could be the seed of financial instability if crypto assets become too ubiquitous, or if they are too closely linked to the traditional financial system, she says.

She adds that developments in this area are also linked to new forms of money as an alternative to the money we have today.

— The investigation that we’ve had on DSP also has to be viewed in light of developments in that area, and then there are some opportunities there. Some of the technologies we are exploring and testing now have features in common with some of the technologies currently used in this field.

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BIS believes that digital central bank money will become an attractive alternative to cryptocurrency

Norges Bank is also interested in regulating cryptocurrency.

– Here, we want to monitor developments, understand and learn, but also be able to give good advice on regulation that we can pass on to other authorities.

– Have you seen the need for special Norwegian regulations in this area?

No, not yet, but we stressed the need for us to follow developments and accurately assess that need over time. Basically, a lot is happening now in the European Union and that would be a natural first step here as well.

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The particular effort on DSP and cryptocurrency, which will have implications for nearly all areas of the bank’s responsibility, will require an increase in staffing.

– Some of the wisest minds we have in the field now are people with a lot of experience working here, but of course we’d also like to welcome the young forces. Hopefully, it will also appeal to a slightly different type of person.

Climate affects the Norwegian economy

The central bank governor stresses that climate change and the need for an energy transition shape the outlook for both the Norwegian and global economy. At the same time, it is clear that the responsibility and means of action lie with the political authorities.

– But climate change and the transition to a low-emission society are also affecting the economy and financial markets, and by doing so, it is also affecting our areas of responsibility, she says.

– In order for us to practice monetary policy in a good way and detect risks to financial stability, we fully depend on understanding the mechanisms and getting a better understanding of how this affects the outlook for the Norwegian economy.

She points out, for example, that weather-related events do affect energy prices, and that large investments in renewable energy help influence the development of the Norwegian economy.

– We have to understand that in order to be able to adjust policy in a good way, even if the key interest rate is not a suitable tool for influencing the climate in itself.

First Strategic Plan: Ida Wolden presents her first three-year strategy for the bank on Thursday.

– Completely unexpected things

The bank’s third major investment relates to the increased availability and scale of data, along with new technology.

It’s more about how they work, Wolden Bache explains, than about concrete analysis projects.

– Experience from the period left behind with the Corona pandemic and the war in Ukraine has shown that completely unexpected things can happen that have a significant impact on the outlook and the risk profile.

– The most important thing is to be able to turn around and quickly deal with problems that arise, rather than specifying exactly which projects we will work on.