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Programmability is one of the great attractions of digital money. This is also one of the features of cryptocurrencies that the designers of Central Bank Digital Currencies (CBDC) are seriously considering.
But what exactly programmability means in the context of CBDC is debatable.
As European Central Bank (ECB) Executive Committee member Fabio Panetta pointed out in a recent speech, programmable payments are often mentioned as an innovative service that a CBDC can facilitate, but “this There is confusion in terminology.”
He went on to say that the ECB is open to allowing digital euro holders to set payment terms in advance, noting that CBDCs could be the equivalent of direct debits and standing orders.
But he argued for a distinction between programmable payments, which set predefined conditions for initiating payments, and programmable money, including when the currency itself entails conditions.
“Let me be clear,” Panetta said. The ECB will place no restrictions on when, where and to whom people can pay with the digital euro. It would be equivalent to a voucher. Central banks issue money, not vouchers. ”
Technically speaking, Panetta’s programmable payments are a lot like smart contracts. Digital contracts are automatically executed when certain technical conditions are met, often transferring tokens from one wallet to another.
Although the concept predates the Ethereum blockchain, smart contracts are widely associated with cryptocurrencies and the wider crypto ecosystem. And Ether’s ability to execute smart contracts will ensure a role for cryptocurrencies in myriad technological systems for years to come.
Smart contract functionality
With an increasing number of central banks investigating and actively issuing CBDCs, the potential for smart contract functionality is up in the air.
It was recently reported that Chinese e-commerce app Meituan has started deploying the first smart contracts using the digital yuan, leading the way.
The smart contract used by Meituan allows the daily winnings to be split among the app’s users. Every time a user pays for an order on the app using digital renminbi, Smarthis contract is triggered to search for the name of the merchant and the specific keywords of the item purchased. If a user has some of these keywords, they will change daily and the wallet will automatically be allocated a portion of the price pool.
Panetta clarified that the ECB has no interest in programming terms of use into the digital euro logic itself, but other central banks are not bound by the same restrictions.
For example, last October, the Monetary Authority of Singapore (MAS) released a report detailing potential uses for a “purpose-limited digital Singapore dollar,” which allows senders to specify the terms of their future spending. Did.
Use cases for the limited-purpose digital Singapore dollar given by MAS include government vouchers that can only be used for food and beverages, or government vouchers that must be used within a defined period of time.
Beyond the different philosophies of their respective issuers, the future digital Singapore dollar and digital euro must operate within a shared global economy. Faced with that possible reality, MAS is working with the central banks of France and Switzerland to test the interoperability of pilot systems.
And regardless of their views on programmable currencies, central banks around the world are united in their interest in programmable payments, a technology that can significantly reduce the complexity of cross-border transactions.
CBDCs can alleviate much of the complexity of cross-border money transfers by using smart contracts to automatically initiate payments in one currency, for example, when funds are received in another currency.
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