Study “The Programmable Euro: Review and Outlook” — Areas of Applications in the Industrial Sector and in the Capital Market

Key results of our study

  1. Business processes in Germany’s real economy and in the financial sector are becoming increasingly complex, with automation and digitalisation taking centre stage. Current payment infrastructures such as the SEPA or TARGET2 systems cannot fully address the needs of new business models because complex data synchronisation processes lead to system discontinuities, and counterparty risks arising from the asynchrony between delivery and payment cannot yet be entirely avoided. Accordingly, there is a growing demand for payment solutions that eliminate the inefficiencies of current infrastructures and lay a foundation for promising business models.
  2. A timely solution in the form of a programmable euro is essential to promote innovative business models for Germany as an industrial location, and the private sector is called on to develop it. We should not wait for the development of a digital euro by the European Central Bank (ECB), which is unlikely to occur before 2026.
  3. A programmable euro developed using Distributed Ledger Technology (DLT) by institutions in the private sector would meet the requirements of the real economy and the financial sector and address the limitations of the current monetary system. Potential configurations for this are (1) stablecoins issued by (as yet) unregulated companies, (2) tokenised commercial bank money issued by financial institutions, (3) tokenised e-money issued by e-money institutions, and (4) trigger solutions combining conventional payment infrastructures and DLT.
  4. This study demonstrates how euro payment solutions based on DLT can address inefficiencies in the current payment system and enable innovative business models. It describes specific use cases and recommends actions for the proactive support of corresponding innovations. DLT infrastructure enables, among other things, immediate, secure, and automated transactions. In future, DLT-based payment solutions will supplement traditional payment systems to keep pace with the increasing digitalisation of business processes.
  5. A programmable euro supports numerous innovative use cases for the financial sector and the real economy. Within the manufacturing industry, business models involving pay-per-use and tokenisation can contribute to effective liquidity management and create new lines of business. The decentralised nature of DLT also implies that efficiency gains can be achieved in supply chain management, as parties need not trust one another but only the underlying technology. In the energy industry, smart contracts enable the automated and efficient purchase and sale of electricity. The financial sector profits from DLT-based digital securities and from more efficient securities settlements and interbank payment processing. Furthermore, DLT also harbours enormous potential for the insurance sector. For all of these DLT applications, a programmable euro would represent an efficient payment option, enabling micropayments and digital DvP transactions (among others), providing the building blocks for the industry of the future.
  6. To promote the development of the programmable euro, it is essential to remain in close consultation with all relevant stakeholders, including policymakers, financial supervisory authorities, financial sector organisations, private companies, and consumers. Cross-company collaboration within industries is also necessary to guarantee the standardisation, interoperability and fungibility of the payment solutions. In particular, the interoperability of the various DLT protocols should be a focus for all parties since the potential of DLT can only be fully realised through services that can be used interoperably. The European business community should agree on a common solution so that the euro can remain a global means of payment. To this end, a far-sighted, transparent and technology-neutral legal framework for the programmable euro is essential. Key points include the compatibility of the programmable euro with data protection provisions, contract law and securities law. The resulting legal certainty is required to gain the trust of investors and advance practical projects involving the programmable euro, and is advocated by this study and by the Finanzplatz München Initiative (Munich Financial Centre Initiative — FPMI).

Remarks

The study contains 74 pages and can be downloaded here with the direct link to the PDF file with 800 kB. We also have created a German translation of this article and the study (PDF).

  • 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

Authors

Prof. Dr. Philipp Sandner has founded the Frankfurt School Blockchain Center (FSBC). From 2018 to 2021, he was ranked among the “top 30” economists by the Frankfurter Allgemeine Zeitung (FAZ), a major newspaper in Germany. He has been a member of the FinTech Council and the Digital Finance Forum of the Federal Ministry of Finance in Germany. He is also on the Board of Directors of FiveT Fintech Fund, 21e6 Capital and Blockchain Founders Group — companies active in venture capital financing for blockchain startups and crypto asset investment management. The expertise of Prof. Sandner includes crypto assets such as Bitcoin and Ethereum, decentralized finance (DeFi), the digital euro, tokenization of assets, and digital identity. You can contact him via mail (m@philippsandner.de) via LinkedIn or follow him on Twitter (@philippsandner).

About the Frankfurt School Blockchain Center:

The Frankfurt School Blockchain Center (FSBC) is a think tank and research center primarily focusing on the implications of blockchain technology for companies and businesses. In addition to the development of blockchain prototypes, the center offers a platform for the exchange of knowledge and thought for decision-makers and startups as well as technology and industry experts. The FSBC sets new research impulses and develops education programs for students and executives. The center concentrates primarily on the areas of banking, energy, mobility, and the manufacturing industry.

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Philipp Sandner

Philipp Sandner

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