Demand for programmable payments is rising in the German economy. The working group on “Programmable money”, initiated by the Federal Ministry of Finance and the Deutsche Bundesbank, arrived at this verdict. The group, comprising experts from 19 enterprises in the real economy and financial sector, analysed possible payment solutions in new, innovative business cases.

“The working group has played a vital role in shaping future payment solutions in Europe. This is where important steps will be taken towards digital transformation in the coming years. And we want to be at the forefront,” said Jörg Kukies, State Secretary at the Federal Ministry of Finance. Burkhard Balz, member of the Bundesbank’s Executive Board responsible for payments, identified key takeaways from the expert discussion for the debate surrounding central bank digital currency. “If the Eurosystem does decide to issue a digital euro, it should enable programmable payments to be used for business cases on the basis of distributed ledger technology.”

Distributed ledger technology is increasingly being used in the German economy as a new basic technology in the drive to go digital. It enables automated processing by means of smart contracts, in which real goods and services are represented as tokens. The full benefits of this processing technology can only be realised if payments are also part of automated settlement. In its final report, the working group analysed, among other things, use cases for machine-to-machine payments, payments in the internet of things and pay-per-use payments.

The report identifies various payment solutions: conventional payments, private crypto-tokens and stablecoins as well as central bank digital currency and tokenised commercial bank money. As conventional payment systems do not have the technical capacity to integrate the payment process into smart contracts, they are reaching their limits in terms of meeting future needs. By contrast, the need for 24/7 payments in real time can already generally be met at the current juncture using instant payments. Many crypto-tokens and stablecoins have the technical capacity to settle the cash leg of a large number of DLT applications. However, they are seen as unsuitable in practice due to their volatility and limited interoperability.

In order to be able to meet the demand for programmable payment solutions, trigger solutions could conceivably be used in the near future. Such solutions could integrate conventional payment systems into the settlement of smart contract-based transactions. While limitations are to be expected in terms of the extent to which they can be implemented and applied, they have the advantage of being quick to develop.

However, tokenised commercial bank money and central bank digital currency are thought to bring the greatest functional benefit in terms of settling programmable payments. The development of both payment forms, which is still pending, offers sufficient scope to comprehensively take into account the need to implement programmable payments. Both options are particularly well-suited settlement solutions for programmable payments on account of the expected credibility of their issuers and their use within a binding legal framework. Furthermore, universal acceptance of a payment solution hinges on technological interoperability and robust IT infrastructures. The report also highlights monetary stability as a key criterion for new payment solutions to be accepted.