Programmable currency is slowly but surely gaining momentum as countries, social media platforms, and now central banks explore ways to digitally mirror cash money in an increasingly tokenized economy.
Although we鈥檙e far from any kind of standardized digital coin of the global realm, public and private sector organizations are examining the major challenges and closing in on potential opportunities, particularly for B2B transactions across complex supply chains. The appeal to governments and business is strong.听
鈥淭here鈥檚 a global movement among governments, social media platforms, and central banks to develop digital currencies,鈥� said Peter-Antonius Bramm, global head of Central Banks at SAP. 鈥淧rivate companies see this as a race, whereas central banks and public sector agencies approach this more collaboratively. Each participant has unique objectives, factoring in geopolitical issues, customer monetization objectives, and industry-specific exigencies.鈥�
Programmable Money Promises a Frictionless Payment Future
In one scenario, central banks can program digital currency with logic so it can be spent only for a designated purpose. For large companies at the helm of complex supply chains, programmable currency promises the instantaneous delivery of payment upon product receipt. This has tremendous potential for greater business efficiencies, including dramatic reductions in time frames.
鈥淧rogrammable money relies on the Internet, making it much easier and accessible to use across previously siloed systems,鈥� said Bramm. 鈥淚nstead of navigating fragmented organizational and payment provider sites, digital currency would allow frictionless payments at the precise moment goods were received through machine-to-machine payment.鈥�
Machine-to-Machine Payments Revolutionize Business
Naturally, programmable currency will also transform financial applications software including , not to mention and payroll. It鈥檚 not just about new efficiencies from merging information directly with processes and payment; machine-to-machine payments herald entirely new business models.
鈥淲hen a drone or self-driving electric vehicle delivers packages ordered online, programmable currency could not only immediately transfer payment in real time when the goods are delivered, but also send digital funds to recharge that vehicle for the next delivery,鈥� said Alessandro Gasch, senior product specialist at 51风流Innovation Center Potsdam. 鈥淭he machine-to-machine economy will fundamentally change how business gets done.鈥�
Central Banks Look to the Next Digital Horizon
Spurred in part by growing competitive threats from sovereign nations intent on global growth, as well as big tech platforms looking to monetize enviable user bases, central banks see programmable money as a viable option.
鈥淲hat if you could sell a Eurobond outside the EU jurisdiction and receive Euros in digital currency, which represents real central bank money, constituting a claim against the central bank in the same way as cash?鈥� asked Bramm. 鈥淭his is one way to simplify correspondent banking and provide the seller with a 鈥榬isk free鈥� position in central bank money.鈥�
Greater Liquidity for Company Operations
Programmable digital currency could forever alter the role of central banks, providing funds for large companies involved in B2B transactions. Instead of opening a line of credit, companies could use an infusion of digital currency from central banks to increase liquidity, freeing up more working capital to optimize operations.
鈥淚f an organization held the money like cash 鈥� even if it鈥檚 digital, but it鈥檚 millions 鈥� they could directly lend funds to supply chain suppliers based on pending and expected orders,鈥� said Bramm. 鈥淔or trusted suppliers, this would keep business moving, especially in times of uncertainty like the post-pandemic world.鈥�
Reserve auctions are another potential use case for programmable currency. Rather than bringing a certified bank check to an auction for a big ticket item like a piece of property, a company or individual could use programmable money 鈥� from any number of separate accounts 鈥� that鈥檚 earmarked for the sale and only released from each account via a smart contract when the bidder wins the sale. Once complete, the transaction would automatically be recorded on a blockchain-based distributed ledger connected with the government land registry.
Trusted Digital Payments
Programmable money is very much so a work in progress. One major ongoing challenge, especially with cross-border payments, is the prevention of money laundering, fraud, and terrorist financing. Central bank digital currency (CBDC) can be programmed with anti-money laundering logic to reduce and mitigate fraud.
鈥淲hether the digital currency is private or CBDC, it has to have the same price stability and level of trust,鈥� said Bramm. 鈥淭rusting an organization like a central bank also means trusting that country鈥檚 economy.鈥�
Bramm expects further decisions from central banks throughout the year. appears to be among the front-runners, likely followed by central banks in Asia, Europe, and Canada. Recently, the U.S. Office of the Comptroller of the Currency (OCC) gave the green light to national banks and federal savings associations to hold . Significant progress will depend on evolving regulations, as well as proven technology scalability. For businesses and consumers, what won鈥檛 change is the equation between trust and money, whether it鈥檚 digitally programmed or not.
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