Programmable money

The two terms are often used as one, and the European debate depends on keeping them apart. With programmable money the rule travels with the coin: whoever receives it inherits the restriction. With a programmable payment the payer sets a rule for one transfer, for example that the rent leaves the account on the first of the month, and the money that arrives is ordinary money. Programmable payments has the details.

For the digital euro the line is drawn in law. Fabio Panetta, then on the ECB Executive Board, told the European Parliament that the digital euro would never be programmable money, because a euro that can only be spent in some places would be a voucher. The Commission wrote the same into its proposal for a digital euro regulation: Article 24 lets the ECB support conditional payments and states that "the digital euro shall not be programmable money".

Outside central bank money, programmable money is already on offer. Stripe names stablecoins and central bank digital currencies as the common examples. Chainlink describes grants that can only go to approved suppliers and escrow that releases funds when a shipment is scanned at a port. Banks build the same logic on tokenized deposits, which keeps the money inside the deposit and supervision framework a bank already has.

The BIS Annual Economic Report 2023 describes where this leads: money and assets become executable objects on a shared programmable platform. That is the unified ledger, in which tokenized central bank money, tokenized deposits and tokenized securities settle together.

A restriction attached to money changes its value. A euro that may only be spent on certain goods is worth less to its holder than a euro that can go anywhere, and if two kinds of euro stop trading one for one, the singleness of money is gone. Central banks therefore keep programmability in the payment layer around the money and out of the money itself.

For a corporate treasurer the useful part is the condition, and it usually belongs to a contract: pay the supplier when the goods are booked in, release the deposit when the inspection is signed off. Those conditions already run through trade finance and treasury systems today. Smart contracts move them onto the ledger where the money settles, which removes the reconciliation step between the booking and the payment.

Programmable money is a digital form of money with rules in its own code that limit how or where it can be spent. The rules stay with the money when it changes hands, which tells it apart from an automated payment instruction.

No. Article 24 of the Commission proposal states that the digital euro shall not be programmable money. It allows conditional payments, in which the payer sets the rule for a transfer and the money received carries no restriction.

A stablecoin runs on a smart contract, so its issuer and the applications around it can attach rules to transfers. Whether a given coin is used as programmable money depends on those rules. Most euro stablecoins under MiCA are e-money tokens that can be spent freely.