Global: Norway Backs EU’s MiCA and Explores CBDC for Enhanced Financial Stability

Norges Bank, Norway’s central bank, has shown support for the European Union’s Markets in Crypto-Assets Regulation (MiCA) as it evaluates a potential Central Bank Digital Currency (CBDC) to enhance cross-border payments and fortify financial stability in Norway.

Kjetil Watne, project director for Norges Bank’s CBDC initiative, shared that, as a member of the European Economic Area (EEA), Norway embraces MiCA’s regulatory framework. However, he mentioned that the bank is still considering whether “additional regulations may be necessary to safeguard financial stability.”

Watne emphasized that while Norges Bank has not reached a decision on issuing a CBDC, the bank is examining approaches to “address regulatory gaps in decentralized finance.”

Aligning with MiCA and Considering CBDC Use Cases

As an EEA member, Norway aligns its regulatory practices with the EU, including MiCA, which is under review by the Ministry of Finance. According to Watne, Norges Bank views CBDCs as promising for facilitating cross-border payments but noted that it is still unclear what a cross-border CBDC system might entail.

In 2023, Norges Bank joined “Project Icebreaker,” a pilot project testing architectures for cross-border retail CBDC payments. Watne commented, “If issued, a CBDC would complement, not replace, cash. We believe digital and central bank currencies could coexist in parallel.”

Addressing Privacy and Compliance Concerns

Watne explained that Norges Bank is cautious about privacy in the context of CBDCs, acknowledging that digital transactions “will leave digital footprints.” He assured that the bank would not monitor individual transactions, aligning with other central banks that don’t intend to access CBDC account balances or payment details.

Norges Bank’s approach assumes this stance will guide its CBDC implementation, ensuring compliance with regulations, such as anti-money laundering rules.

Systemic Risks in Banking Under MiCA

MiCA, expected to come into full effect by December 30, raises concerns around “systemic risks” for the banking sector, particularly in managing stablecoin reserves, according to Tether CEO Paolo Ardoino. MiCA requires stablecoin issuers to hold a significant portion of their reserves—at least 60%—in European banks, raising concerns that bank loans and reserve vulnerabilities could pose stability risks if a holding bank were to face financial distress.