Yves Mersch, Member of the Executive Board of the European Central Bank (ECB), spoke earlier this week at the Farewell ceremony for Pentti Hakkarainen, Deputy Governor of Suomen Pankki – Finlands Bank in Helsinki – on how the ECB could design, issue, and manage a central bank digital currency.

“Today I will focus on one type of digital money – Central Bank Digital Currency, or Digital Base Money (DBM). This is money that is characterised by two features: (1) like banknotes in circulation, DBM is a claim on the central bank; (2) in contrast to banknotes, it is digital.”

“…DBM held by non-banks could either be account-based – in this case, the central bank would open an account for every interested non-bank – or it would be value-based like cash. In this case, interested non-banks would need to be equipped with electronic wallets for holding and using DBM. A transfer of DBM would require that the funds be debited from the payer’s electronic wallet and credited to the payee’s device without the involvement of the central bank.”

“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.”