Programmable Money and Programmable Payments

Programmable payments

Three key features of smart contracts

Contract execution, digital payment infrastructure, and monetary units

Figure 1: Programmable payment value chain. Integrating different dimensions of programmability with underlying features of smart contracts.

Contract execution system, digital payment infrastructure and monetary unit

  1. Central bank digital currencies (CBDC): issued by the central bank as legal tender.
  2. Synthetic central bank digital currencies (sCBDC): issued by commercial banks or e-money institutes. No legal tender, but backed 100% by central bank reserves. Obligation to exchange for legal tender at any time.
  3. DLT-based commercial bank money: issued by regulated financial organizations, e.g. commercial banks. No legal tender and only partially backed by central bank reserves (i.e., fractional reserve system). Obligation to exchange for legal tender at any time.
  4. DLT-based e-money: issued by e-money institutes. No legal tender. Fully backed by e-money on accounts. Obligation to exchange for legal tender at any time. In the sense of the new MiCA regulation proposed by the European Commission, these would be so-called E-Money tokens (EMTs).
  5. Fiat-pegged stablecoins: issued by regulated (e.g., commercial banks, payment service providers) or unregulated financial organizations (e.g., companies not having all required licenses in all required countries). Stablecoins are only “fiat derivatives”. They replicate the price of a fiat currency, but are neither legal tender nor is there an obligation to exchange them for legal tender, as in the case of commercial bank money. For this reason, they exhibit counterparty, exchange rate and liquidity risks. According to the MiCA regulation proposed by the European Commission, these would be so-called asset-references tokens (ARTs).

Programmable money

Conclusion

Remarks

Professor | Lecturer | Author | Investor | Frankfurt School Blockchain Center

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Philipp Sandner

Philipp Sandner

Professor | Lecturer | Author | Investor | Frankfurt School Blockchain Center

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