Programmable Money and Programmable Payments

Programmable payments

The terms “programmable money” and “programmable payments” are often used interchangeably, even though they mean different things. Programmable payments are payments that are automatically executed after certain conditions are met. Thus, these payments are automated and follow an inherent, predetermined logic. Programmable payments already exist in today’s banking system, for example, in the form of standing orders and direct debits.

Three key features of smart contracts

To clarify the understanding of smart contracts, we rely on how smart contracts are realized on the Ethereum platform. In short, such smart contracts mainly have the following three features:

Contract execution, digital payment infrastructure, and monetary units

Figure 1 summarizes our proposal of a taxonomy that integrates the payment value chain with the underlying features of smart contracts. We decompose the programmable payment value chain into three pillars: the contract execution system, the digital payment infrastructure, and the monetary unit. This distinction is based on a joint research project with Agata Ferreira and Geoffrey Goodell, which will be published later this year.

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

The first step in our programmable payment value chain is a contract that automatically triggers a payment. The contract is implemented on a DLT (i.e., a smart contract). We call the environment, where contracts are placed and executed, “contract execution system”. For example, any business logic or a business process can execute such contracts. In the e-car example above, the price negotiation, the charging process, and the initiation of the payment are part of the contract execution system as all these processes are implemented through smart contracts. At this stage, the first feature of smart contracts — the programming capabilities — are at play.

  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

Let us now turn to “programmable money”, which mainly refers to the 2nd feature of smart contracts: defining properties of money. If money is issued on a DLT, it becomes programmable, meaning we can create a token that carries an inherent logic. For instance, we could program this token such that it gains or loses value over time (e.g., to implement interest payments). Alternatively, we could ensure that this token can only be spent on certain things, such as food.


It is important to distinguish between programmable money and programmable payments because they have different use cases. The example of the e-car is a good use case for a programmable payment. However, the programmability of money is not necessary in this case. Instead, programmable money can be used, for instance, to implement targeted aid payments during crises such as COVID-19. By giving the money paid out to citizens an inherent logic, the government could ensure that the subsidies are spent in a timely fashion and only for predefined things such as food, medicine, or clothes.


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  • Blockchain knowledge: We wrote a Medium article on how to acquire the necessary blockchain knowledge within a workload of 10 working days.
  • Our two blockchain books: We have edited two books on how blockchain will change our society (Amazon link) in general and everything related to finance (Amazon link) in particular. Both books are available in print and for Kindle — currently in German and soon in English. The authors have been more than 20 well-known blockchain experts in startups, corporations and the government from Germany, Austria, Switzerland and Liechtenstein — all contributing their expertise to these two books.
Our two books: the first one on blockchain and the society and the second one on blockchain and finance


Alexander Bechtel is a research and teaching assistant at the Swiss Institute of Banking and Finance at the University of St. Gallen. His research focuses on monetary policy, safe assets, and digital currencies. Since June 2019, Alexander publishes the podcast “Bitcoin, Fiat & Rock’n’Roll”. You can find more information including contact details and social media profiles at



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Philipp Sandner

Philipp Sandner


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