Torbjørn Hægeland of Norges Bank says the financial industry should have a strategy for tokenization. Tokenization and traditional technology may end up coexisting, and the bank wants closer cooperation with Nordic and European central banks.
"Perhaps we'll see a development where tokenization and traditional technology live side by side," says Hægeland. In that case, he argues, the Norwegian financial industry should have a strategy to meet and exploit it – and central banks should have their own strategy on the issue. Hægeland is clear that important settlements should take place in central bank money, including for transactions from tokenized platforms.
Tokenization means that money, securities or other assets are represented as digital tokens in a blockchain-based register. Stablecoins are one variant of this – crypto assets designed to hold a stable value against a reference, which can be transferred around the clock without traditional intermediaries. But tokenization is a broader concept: ordinary money and securities can also be tokenized, and several central banks are now looking at how settlement between banks can be done this way. Torbjørn Hægeland, director for financial stability at Norges Bank, touched on both tracks as he opened on digitalization and payments at Finans Norge's payments and digitalization conference.
Hægeland points out that the gains and costs of tokenization will largely arise outside the central bank, and depend on a coordinated technology shift among several players. Cooperation with and within the industry is therefore crucial to realizing the gains, he says.
Norges Bank also wants closer cooperation with Nordic and other European central banks on future settlement systems. Such cooperation would let countries benefit from larger expert communities, share development and preparedness costs, and take part in further infrastructure development – which also gives greater room to manoeuvre to meet future changes, according to Hægeland. That includes the development of tokenized markets and new forms of settlement in central bank money, where the Eurosystem is already exploring new solutions and technologies – among them the ECB's settlement solution Pontes, which launched its first version on 21 September.
Norges Bank must also decide on Norwegian participation in the European TETOS for securities settlement, where tokenized settlement could become relevant in the longer term.
Hægeland confirms the line the central bank governor has drawn previously: Norges Bank does not believe stablecoins will play a major role as a means of payment in Norway. The country already has a well-functioning, efficient and secure payment system, stablecoins lack the characteristics of a general means of payment, there is no overarching actor that can provide liquidity in a crisis, and they run on open blockchains, which raises governance and security challenges. Stablecoins could still find a niche role, among other things in cross-border payments and payments requiring programmability, see Kaupr's earlier coverage of the governor's comments on stablecoins.
Sources: Norges Bank
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