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’re 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.
“There’s a global movement among governments, social media platforms, and central banks to develop digital currencies,” said Peter-Antonius Bramm, global head of Central Banks at SAP. “Private 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.”
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 reconciliation timeframes.
“Programmable money relies on the internet, making it much easier and accessible to use across previously siloed systems,” said Bramm. “Instead 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.”
Machine-to-machine payments revolutionize business
Naturally, programmable currency will also transform financial applications software including accounts payable and receivable, not to mention supply chain management and payroll. It’s not just about new efficiencies from merging information directly with processes and payment. Machine-to-machine payments herald entirely new business models.
“When 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,” said Alessandro Gasch, senior product specialist at SAP Innovation Center Network in Potsdam. “The machine-to-machine economy will fundamentally change how business gets done.”
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.
“What 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?” said Bramm. “This is one way to simplify correspondent banking and provide the seller with a ‘risk free’ position in central bank money.”
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.
“If an organization held the money like cash, even if it’s digital but it’s millions, they could directly lend funds to supply chain suppliers based on pending and expected orders,” said Bramm. “For trusted suppliers, this would keep business moving, especially in times of uncertainty like the post-pandemic world.”
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 – from any number of separate accounts – that’s 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 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.
“Whether the digital currency is private or CBDC, it has to have the same price stability and level of trust,” said Bramm. “Trusting an organization like a central bank also means trusting that country’s economy.”
Bramm expected further decisions from central banks throughout the year. China appears to be among the frontrunners, 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 stablecoin reserves. Significant progress will depend on evolving regulations, as well as proven technology scalability. For business and consumers, what won’t change is the equation between trust and money, whether it’s digitally programmed or not.