ECB Says Yes to Programmable Payments, No to Programmable Money

Programmability is one of the major draws of digital money. It is also one of the features of cryptocurrencies that is being seriously considered by central bank digital currency (CBDC) designers.

But what exactly programmability means in the context of CBDCs is up for debate.

As Fabio Panetta, member of the executive board of the European Central Bank (ECB), noted in a recent speech, while programmable payments are often mentioned as an innovative service that CBDCs could facilitate, “there is some confusion about the term.”

He went on to state that the ECB is open to enabling digital euro holders to set their own conditions for payment in advance, pointing to potential CBDC equivalents to direct debits or standing orders.

But he insisted on a distinction between programmable payments, that is setting predefined terms for a payment to be initiated, and programmable money, which involves instances in which the currency itself carries conditions.

“Let me be clear,” Panetta remarked, “the digital euro would never be programmable money. The ECB would not set any limitations on where, when or to whom people can pay with a digital euro. That would be tantamount to a voucher. And central banks issue money, not vouchers.”

In technical terms, Panetta’s programmable payments sound a lot like smart contracts — digital contracts that are automatically executed by the fulfillment of certain technical conditions, often the transfer of tokens from one wallet to another.

Although the concept predates the ethereum blockchain, smart contracts are nonetheless widely associated with cryptocurrencies and the wider crypto ecosystem. And ether’s function in executing smart contracts will likely ensure that cryptocurrency has a role to play in countless technological systems for years to come.

Smart Contract Functionality

With a growing number of central banks either investigating or actively minting CBDCs, the prospect of smart contract functionality lingers in the air.

Leading the way, it was recently reported that Chinese eCommerce app Meituan has begun deploying the first smart contracts to use the digital yuan.

The smart contracts used by Meituan allow a daily prize to be divided between users of the app. And each time a user pays for an order on the app using digital yuan, a smart contract is triggered that looks for the merchant’s name and certain keywords in the goods purchased. If a user has some of those keywords, which change daily, their wallet will automatically be allocated a portion of the price pool.

While Panetta has made clear that the ECB has no interest in programming usage conditions into digital euro logic itself, other central banks aren’t bound by the same limitation.

For example, the Monetary Authority of Singapore (MAS) released a report last October detailing potential uses of a “purpose-bound digital Singapore dollar” which would allow senders to specify conditions for onward spending.

Among the use cases MAS cites for purpose-bound digital Singapore dollars are government vouchers that could only be spent on food and drink or must be spent within a defined timeframe — a stark contrast to Panetta’s stance on central banks not issuing vouchers.

Beyond the divergent philosophies of their respective issuers, any future digital Singapore dollar and digital euro will still have to operate within a shared global economy. Looking ahead to that possible reality, the MAS has been collaborating with central banks in France and Switzerland to test the interoperability of their pilot systems.

And regardless of their views on programmable money, central banks around the world are more aligned on their interest in programmable payments, a technology that could massively reduce complexity in cross-border transactions.

Using smart contracts, CBDCs could take much of the work out of complex international transfers by automatically triggering payment in one currency once funds have been received in another, for example.


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