Please note that the text below may differ slightly from the actual presentation.

Introduction

Good morning. I would like to thank Finance Norway for the opportunity to speak to you today. When I stood here one year ago, I opened my address by emphasising the importance of balancing the duality inherent in the concept of responsible innovation. I linked this to the notion that money is both a social and political construct on the one hand, and a technology on the other. This year, allow me to make the same point but from a different angle.

It is not without reason that the Central Bank Act's objects clause requires Norges Bank to promote both an efficient and secure payment system. In fact, these two considerations must always balanced against each other in order for the system to meet society's needs and maintain users' trust: Ideally, everyone should be able to transfer money quickly and at low cost, but without risking the money being lost along the way.

To achieve this, there are also a number of relationships that must be balanced, such as the aforementioned relationship between responsibility and innovation, between orders and self-regulation and between common solutions and competition. I believe there is rather broad consensus that competing payment services should be built on sound, common infrastructure solutions, but the design and implementation of common solutions are not obvious. In some cases, a balance must also be struck between conflicting interests, for example between different commercial interests, and where commercial and societal interests are not aligned.

The optimal balance is not always evident. With this as my starting point, I would like to share with you some of our recent findings in the area of payments.

Tokenisation and central bank money

Given today's conference agenda, it is only natural to begin with tokenisation. In blockchain technology, information is saved in a cryptographically linked chain of blocks. Assets can be represented as digital units – tokens – in such blockchain ledgers. A token can represent a new digital asset – as known from cryptocurrencies – or it can be a digital representation of a traditional asset, like securities, bank deposits or other forms of money.

Tokenisation's appeal lies in its ability to drive innovation, enhance efficiency and reduce settlement risk. This is possible because it provides opportunities for programmability, automation and atomic settlement – whether delivery-versus-payment or payment-versus-payment – in real time, around the clock. At the same time, there are legal, operational and fraud-related risks, in addition to considerable investment costs. We do not know how tokenisation will evolve. Technical, legal and economic issues must all be resolved.

Nevertheless, the potential benefits suggest that tokenisation is worth exploring. We need to deepen our understanding. And by "we", I mean central banks, other authorities and private entities in payments and finance. While the potential gains and costs of tokenisation will mostly be found outside the central bank, the Bank still plays a role – here, as elsewhere, in ensuring that key settlements are carried out in central bank money.

In recent years, Norges Bank has conducted experimental testing of to, among other things, gain more knowledge of tokenisation as it relates to central bank settlement. The testing takes place in a dedicated technological sandbox that is open to others. The collaborative projects so far have culminated in useful insight. But for those eager to experiment with tokenised money and other assets, the sandbox has plenty of space.

Norges Bank's research on central bank digital currencies (CBDC) focused on a retail CBDC. Unlike tokenised central bank reserves, which are a means of settlement between professional participants, retail CBDCs are intended to be generally accessible to the public on par with cash and bank deposits, thus, representing a potentially major transformation of a generally well-functioning payment system. The payment system in Norway is relatively cost-efficient, fast, secure and adapted to the needs of most users. It works well, even though we should always pursue continuous improvement. The existing solutions provide a solid basis for implementing necessary enhancements.

Norges Bank's CBDC research focuses on identifying the problems we can address with a CBDC and whether other instruments are more appropriate, such as regulation and the further development of current payment solutions. Our starting point is solid, although retail CBDCs raise complex issues. As I mentioned here a year ago, this implies that we should not proceed with undue haste. The Bank's CBDC research is scheduled to finish at the end of the year, so we will have to wait a little longer for the conclusion.

According to a survey conducted by the BIS, over 90 percent of central banks are conducting some sort of CBDC research. Among the central banks in advanced economies, focus has shifted towards wholesale CBDCs, 

with the European Central Bank and the Eurosystem being notable exemptions, whose extensive research covers different ways of settling transactions from blockchain-based platforms in central bank money, as well as a retail CBDC – the digital euro. In October, the digital euro project concluded its "preparation phase". The Eurosystem will decide on implementation once political authorities in the EU adopt the necessary legislation.  The ECB has signalled that a digital euro could be introduced as early as 2029 provided that legislation is passed next year. 

The situation in the euro area is slightly different than in for example Norway, which may mean that the need for – and confidence in – retail CBDCs is greater in Europe than elsewhere. To date, Establishing pan-European payment solutions has been difficult, which has led to a reliance on non-European payment providers both within individual countries and for cross-border euro payments. In addition, offline contingency solutions at points-of-sale are not well-developed. A more turbulent geopolitical landscape amplifies the concern over such deficiencies and vulnerabilities. As a result, there is now a sense of urgency concerning the digital euro project.

The ECB views the digital euro as an instrument for securing greater strategic autonomy in payments. Requiring the universal recognition of the digital euro as legal tender could also serve as a tool for opening up Europe's payment infrastructure to participants that to date have been excluded. For Norway, the situation is different. Our context-based balance assessment between public and private solutions for digital money may therefore differ.

Stablecoins

Private tokenised money, such as cryptocurrencies and stablecoins, already exists. Markets for such digital assets are gaining traction, partly driven by new regulations and other changes in the US. New investment products have increased the availability of cryptoassets to investors. Today, banks and other financial institutions are not significantly exposed to crypto-based investment products. There are global indications that this could change, and we must therefore monitor developments and assess the implications for financial stability.

Stablecoins, which are cryptoassets that aim to preserve a stable value against a benchmark asset, have received considerable attention. They are primarily used for trading and speculation in cryptoassets. Some other applications are emerging, perhaps particularly in cross-border payments and transfers, which currently do not function well enough. This illustrates the need for and potential of efficiency gains, but such gains must be realised with an acceptable level of risk. Innovation and risk must be balanced. In the EU and the EEA, the Markets in Crypto-Assets (MiCA) Regulation has established a regulatory regime for stablecoins. This summer, a stablecoin framework was introduced in the US under the GENIUS Act. In the UK, new stablecoin regulations are currently being drawn up, and the Bank of England has proposed a regulatory regime for sterling-denominated systemic stablecoins. 

Today, stablecoins are predominantly denominated in US dollars. Whether euro-denominated or other non-US dollar stablecoins can close the gap and find meaningful applications is uncertain at this stage. We have recently seen a number of major European banks initiate euro-denominated stablecoin projects. These banks state that their aims are innovation, efficiency, standardisation and contributing to European strategic autonomy.

A shift toward increasing the use of stablecoins is, however, not straightforward. In weaker economies, stablecoins in foreign currencies pose a risk of currency substitution. The BIS has also identified a number of weaknesses in stablecoins as money:

• Stablecoin values have been volatile, which could threaten the singleness of money. One krone must be exactly one krone across all forms of money used, and users must be able to have full confidence in its value. In contrast to bank deposits, stablecoins operate as closed systems without settlement in central bank money to ensure the singleness of money. Stablecoin value is determined by the market and mechanisms that secure the stability of deposit money, such as deposit insurance, do not extend to stablecoins. Hence, we cannot be certain about the absolute stability of stablecoins, especially in periods when markets are jittery.
• Stablecoin supply is also less elastic than bank deposits. In principle, each stablecoin should be backed by assets before issuance. Unlike bank loans, new stablecoins do not create new money.
• The final point made by the BIS is that controls to prevent the illicit use of stablecoins are not yet adequate.

New regulations could help address some of the weaknesses highlighted by the BIS, but there is still a long way to go. If become major participants in government debt and other securities markets and hold large bank deposits, a loss of confidence and runs on stablecoins could affect financial stability.

Stablecoins have a global reach, with many issuers operating in multiple jurisdictions. However, issuance location does not affect a stablecoin's fungibility. This could lead holders redeeming stablecoins in jurisdictions with the most favourable legal protections. This leaves well-regulated jurisdictions particularly vulnerable to systemic risk when there is a loss of confidence. This has already been identified as a possible concern in relation to the MiCA Regulation.

As a central bank, we must monitor the use of stablecoins and the implications for financial stability. We must also be ready to propose regulation to promote financial stability and carry out our licensing and oversight responsibilities under MiCA.

Central banks will - as always - also work to ensure the settlement of systemically important transactions in central bank money. Central bank money carries no credit risk and can supply liquidity. Settlement in the central bank contributes to the singleness of money and interoperability. Settlement in central bank money therefore enhances both safety and efficiency in the payment system. This is not a difficult balancing act. The challenge, rather, is to allocate sufficient resources to explore the opportunities that tokenisation may offer. This is primarily a job for the financial industry. Norges Bank is ready to contribute within our area of responsibility.

Contingency preparedness

As I stood here last year, I highlighted that the threat landscape had worsened in recent years – with an increased risk of targeted attacks on financial infrastructure. Since then, additional concerns have emerged. With such a threat landscape, we need place greater emphasis on contingency preparedness to achieve the right balance between efficiency and security.

The government has charted a clear course with the publication of the white paper on total preparedness in January and the National Security Strategy in June. I would like to highlight in particular two of the fundamental security interests discussed in the National Security Strategy and how they reflect the strategic choices and priorities for our payment system:

"A free and independent Norway" means having both the formal and real freedom of self-determination, in peacetime and in times of crisis and war. We therefore need the operational freedom to perform critical societal functions across the full spectrum of crises. For the payment system, this also means organising operations in a manner that allows us to provide payment services even in extraordinary situations. As the Payment Commission also stated, the overall ambition should be to ensure that an inability to make payments does not become a limiting factor in a crisis situation.

Earlier this year, a working group comprising representatives from the financial industry and public authorities presented 18 recommendations to safeguard our payment system during extreme crisis scenarios. Many of you are likely well-acquainted with these recommendations already, so I will spare you the details, but broadly speaking, the recommendations call for strengthening contingency preparedness for payments at critical points in the payment chain. We need alternatives such as offline back-up solutions in case lines of communication become unavailable. We need contingency arrangements for situations where one or more banks lose access to their own customer data. And we need back-up solutions if clearing and settlement systems become unavailable.

With multiple contingencies at every stage, the digital payment chain becomes resilient enough to cope with even extreme crisis scenarios. I am pleased to report that implementation of the recommended measures is well underway, supported by the solid efforts by many of you in this room. The close cooperation between the financial industry and the authorities on such issues is a major source of strength.

And as we look through a national lens, let us not forget our secure and nationally distinctive Norwegian banknotes and coins. Despite low usage, cash retains unique properties that give it an important role in the payment system, primarily related to preparedness and inclusion. For cash to be able to fulfil its functions, it must be available. This is the responsibility of banks – but cash availability is vulnerable and has certain limitations. There is no doubt that safeguarding key societal interests comes at a cost. Ideally, banks should ensure the availability of adequate cash services through solid and cost-efficient collaborative solutions – as the industry did with, for example, the BankAxept contingency solution. The alternative would be more detailed regulation. The Norwegian payment system has benefitted from the banks and the wider financial industry taking corporate social responsibility by honouring the intent of broadly formulated directives and expectations, often through effective shared solutions. I hope that this will continue.

The next generation settlement system

At the same time, we must see our national measures in the context of international cooperation. "Allied solidarity and unity in Europe" means recognising that our security and prosperity are also strengthened through collaboration with others. Having close ties with our Nordic neighbours, entering into binding cooperation with Europe and the EU's single market are all crucial to this. European integration, the harmonisation of payment systems and financial infrastructure underpin this, and cooperation with our allies better equips us to meet future requirements for security, contingency arrangements and functionality.

The advantages we gain from Nordic and European are an important motivation behind Norges Bank's signing of an agreement with the European Central Bank (ECB) to participate in TARGET Instant Payment Settlement (TIPS). In February, we also entered into formal discussions about participation in the T2 settlement system – an interbank settlement system comparable to Norges Bank's current settlement system (NBO).

Just like strengthening contingency arrangements in the payment system, shaping the next generation settlement system calls for close, constructive cooperation between the financial industry and the authorities. Norway has strong traditions in this area, and I hope and trust we will also bring this into a Nordic and European arena. The work to join TIPS and T2 will be extensive and complex for us all. It will not be smooth sailing, which is why we must keep reminding each other about the strategic backdrop.

It recently became clear that connecting to TIPS will require more extensive adjustments to NBO than we first anticipated – precisely to safeguard resilience and security. As a result, we will need to revise the timeline. We are of course doing everything we can to clarify this as quickly as possible. What we cannot do, however, is compromise on the security and quality standards of the solutions we are going to build. For a final decision on joining T2, it is also essential to clarify issues related to contingency preparedness and security, and ensure that we can maintain safe and efficient operations in both normal times and in a contingency situation.

In parallel, we and many financial industry participants are preparing to transition to T+1, which involves securities settlement one day after the trade rather than the current two days. This transition frees up capital, reduces margin requirements and shortens exposure to liquidity risk. At the same time, the transition may necessitate longer opening hours and more resources in settlement operations, including at Norges Bank. will apply across all major capital markets, including the EU. The regulation is considered EEA-relevant and is expected to be incorporated into the EEA Agreement, which means that Norway will follow the EU's implementation date of 11 October 2027. In line with European regulation, we are also working on the terms and conditions for account management at Norges Bank that apply to payment institutions and e-money institutions to hold accounts at Norges Bank.

All these workstreams are costly in terms of time and resources for those involved, which reminds us that harmonisation and standardisation will involve more than shaking hands and delivering ceremonial speeches. But we must take the time to do these things correctly, so we do not lose our footing and stumble.

Conclusion

Let me conclude. Today, I have highlighted some of the rather difficult balancing acts inherent in shaping an increasingly efficient and secure payment system. It is also important that we focus attention on everything that should be improved, not least in light of the accelerating pace of change and a more challenging risk landscape. At the same time, we must not tip into pessimism. The payment system in Norway is efficient and secure. We have built it together, and while our views may differ on certain issues that arise, we must together develop this strong payment system based on mutual respect for each other's interests.

Dialogue and open exchange are key to success – and I am therefore looking forward to hearing perspectives from other speakers and to participating in an engaging and interesting panel discussion today. Thank you for your attention.