The executive board members of the European Central Bank (ECB) have highlighted the potential of blockchain technology for banks and market infrastructures, while reflecting on the prospect of central bank digital currencies.

Benoît Cœuré, a member of the executive board of the ECB, told Caixin Global that this is an area where the central banks “tread with caution.” He explained that the regulators have to take into account a number of factors including the trend in demand for cash in the jurisdiction, as well as the assessment of the full impact of any change in its operations, both for the citizens and for the structure of financial intermediation.

“In that respect, I would make a clear distinction between wholesale and retail applications,” Cœuré added. “Starting with wholesale markets, we see that distributed ledger technology (DLT) has a lot of potential for market infrastructures. All major central banks are looking into it.”

He further stated the ECB’s pilot project with the Bank of Japan in which they concluded that the DLT is not yet mature enough to migrate large-value payment systems.

“The question will arise as to whether central banks could at some point provide central bank money to financial market infrastructures in a digital form. We are still in the early stages of that discussion, but it is a relevant one,” Cœuré said.

In an interview with Börsen-Zeitung last month, ECB executive board member Yves Mersch pointed out the challenge which the banking sector would have to face due to blockchain technology.

When asked about the potential of private cryptocurrencies to become a real alternative to central bank money, Mersch said,

“Money needs trust. Public currencies, for example the euro, have the backing of public institutions such as the ECB. Many of these currencies have no backing, nothing. It’s a somewhat different matter for the underlying technology, the blockchain. That’s a challenge we all have to face, especially banks. Each institution has to know that in the future financial intermediation will no longer be heaven-sent, but has to be fought for.”