According to the Bank for International Settlements, over 60% of central banks are experimenting with central bank digital currency technology. CBDCs are close to being widely introduced and many complex matters have been discussed in financial circles. These include developing secure infrastructure, questions around governance – such as how to balance anonymity with transparency – and mitigating adverse economic impacts. As public digital currencies rapidly transform from theory to reality, there is one important feature that needs to be examined: programmability.
When talking about programmability, it is crucial to note the distinction between programmable money and programmable payments. The two terms are often used interchangeably, but there is a difference. Programmable money is designed with in-built rules that constrain the user. These rules could mean that money expires after a fixed date or its use is restricted to a certain set of goods. This would affect digital currency acceptance and has obvious legal implications.
Programmable payments, on the other hand, enable automatic transfers to be carried out or blocked when pre-determined conditions are met. These could include daily spending limits or recurring payments, similar to direct debits and standing orders but with added complexity and conditionality. Programmability features could bring numerous benefits, enabling new workflows, processes and digital business models without affecting the properties of the currency itself.
Machine-to-machine payment, for example, is one area that harbours enormous potential. Driverless vehicles could negotiate directly with charging points, pay for the electricity used and drive away without any human intervention. Industrial machines could purchase supplies when stocks are running low, diagnose reliability issues and pay for repairs autonomously. Programmable payments make doing business more efficient and more consistent. When transactions can be automatically settled, huge cost and time savings can be made.
At its most basic, the ability to programme payments boosts convenience and improves efficiency for a wide range of stakeholders. CBDCs must include programmability as a feature – as long as programmable logic is located outside of the asset.
Programmability is achievable without using blockchain technology. G+D’s retail CBDC solution, G+D Filia, includes a programmability feature that forms a foundation for innovation. Financial service providers can build on reliable infrastructure provided by central banks. And people can be sure that CBDCs are just a digital form of cash, without any usage restrictions or privacy issues.
People are no longer questioning if CBDCs will be introduced. The focus is on how they are built and what form they will take. A CBDC with programmable features has the potential to revolutionise business, expedite the economy of things and move our world into an ever more digital future. All of this can be achieved in a secure manner and without touching the currency itself, instead layering functionalities on top of digital money. In this way, citizens can continue to trust the value of money, while the features and processes developed through programmable payments foster the growth of the digital economy.
Wolfram Seidemann is CEO of G+D Currency Technology.