Fiat Freeway: Norges Bank studies CBDC’s effect on ‘Safe Asset’ Funding

The Central Bank of Norway, Norges Bank, released its ‘The demand for safe liquid assets and the implications of issuing a Central Bank Digital Currency for bank funding instruments’ report on Friday, November 6th. It is the third report on CBDC published by Norges Bank to date, and a fourth report is scheduled for release early next year. A potential CBDC isn’t expected to be implemented anytime soon, but upon publication of the next report, Norges Bank will decide the best course of action moving forward. 

This report considers the potential impact CBDC issuance would have on bank funding markets and overall financial system stability. Specifically, the Staff Memo shared research on retail and wholesale funding instruments and found that CBDC would likely crowd-out both retail deposit funding and private institution financial sector sources. However, since CBDC features are not yet standardized and defined, differences between CBDC and other safe liquid assets can’t be completely ascertained, meaning that presumptions are dependent on individual economies and each CBDC proposal.