The European Central Bank (ECB) official and ex-Governor of the Central Bank of Luxembourg addressed on digital currency during his speech at the Farewell ceremony that was held at Helsinki for Pentti Hakkarainen, Deputy Governor of Suomen Pankki, Bank of Finland.

Yves Mersch, Member of the Executive Board of the ECB, discussed on how the bank could design, issue, and manage a central bank digital currency that will be used alongside cash. He focused on one type of digital currency, which is Central Bank Digital Currency, or Digital Base Money (DBM).

Mersch outlined various options for designing, issuing and managing DBM, and discussed some of their potential consequences. He discussed two models for a central bank digital currency; account-based and value-based. He also said that blockchain or distributed ledger technology (DLT) has the potential to support both the systems.

“Whether DBM is account based or value based might matter for several reasons. Let me mention two. First, value-based and account-based DBM may require very different types of technology with specific safety features and costs. DLT may be fit for both but in different ways. Second, anonymity towards the central bank can be achieved only with value-based DBM. These factors may influence the demand for DBM by non-banks and whether DBM would be used more to substitute cash or bank deposits,” he stated.

He also mentioned options for providing DBM that include a straightforward approach of allowing non-banks to convert commercial bank deposits into DBM at a rate of 1 to 1. He said that this approach would appear more attractive, provided that non-banks mainly substitute cash rather than bank deposits with DBM.

Mersch concluded that ECB, in particular, has to understand the impact of either positive or negative of DBM on the primary objective of price stability before considering introducing it. He also stated that any value judgment on DBM needs to be assessed against a number of high-level principles including technological safety, efficiency, technological neutrality, freedom of choice for users of means of payments.

“As there has been some speculation about a possible intention of central banks to abolish cash, please let me stress one aspect relating to the principle of freedom of choice: if DBM for non-banks were introduced, it would exist alongside cash for the foreseeable future. It would merely be an additional option for non-banks to hold funds. In particular, those who are skeptical about digital devices would naturally continue to use cash,” he concluded.