Digital Euro Association Blog

Programmable Money and Programmable Payments

Sep 29, 2020 12:09:54 PM / by Victor von Wachter, Jonas Gross, Alexander Bechtel, Philipp Sandner posted in Digital Money, Programmable euro

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Medium

“Programmable money” is, without doubt, one of the major buzzwords in the blockchain space in 2020. Even though everyone seems to talk about it, we still lack a clear definition and hence common understanding of this term. In this article, we present a taxonomy of programmable money. In particular, we argue that “programmable money” has to be differentiated from “programmable payments”. To make this distinction as clear as possible, we develop a framework in which we decompose the payments value chain into three pillars: the contract execution system, the digital payment infrastructure, and the monetary unit. 

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Open Letter: Roadmap Towards a Digital Programmable Euro

Jul 31, 2020 12:11:26 PM / by Philipp Sandner posted in Programmable euro

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Medium

With this letter published on June 15, 2020, we would like to propose a long overdue, high-level roadmap concerning the digital programmable Euro. This initiative is supported by a large and diverse group of experts from across Europe and other countries.

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The Digital Programmable Euro, Libra and CBDC: Implications for European Banks

Jul 31, 2020 11:57:40 AM / by Philipp Sandner, Jonas Gross, Philipp Schulden, Lena Grale posted in Programmable euro

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Working Paper

Existing payment systems get more and more disrupted. As a consequence of the global trend of digitizing payments and generating new business models from the use of blockchain-based digital programmable money, several new payment initiatives have been announced recently. Besides “classical” crypto assets, also stablecoins become increasingly important. The announcement of the Facebook-initiated Libra stablecoin is mainly perceived as a game-changer for the financial sector. Today, also central banks discuss the introduction of their own digital currencies, so-called CBDCs. To date, these payment innovations are not sufficiently discussed and analyzed from the perspective of different sectors and industries, as its implications remain unclear since most initiatives have not yet been introduced. At this point, the literature does not sufficiently discuss the implications of these innovations on the financial sector. This paper sheds light on the perception of these payment initiatives by interviewing more than 50 senior experts. In this study, we analyze the impact of digital programmable Euro initiatives, such as the Libra stablecoin, and CBDCs, on banks. We find that both Libra and a Euro CBDC might heavily affect European banks. Experts fear that large-scale financial disintermediation of the financial sector could take place, and digital bank runs could be triggered. Besides these risks, our findings suggest that banks also have the opportunity to develop new business models stemming from these initiatives. Therefore, Libra and a CBDC Euro should not only be seen as threats but also as opportunities.

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The Digital, Programmable Euro: Statement by the FinTech Council of the German Federal Ministry of Finance

Jul 31, 2020 11:40:01 AM / by Philipp Sandner posted in Programmable euro

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Medium

On July 23, 2020, the FinTech Council of the German Federal Ministry of Finance (German: FinTechRat des Bundesministerium der Finanzen) published a statement about the digital, programmable Euro. With this article, we provide an unofficial translation of the German version of the paper with the goal to make the content also available to non-German speaking readers. More information can be found on the website of the German Federal Ministry of Finance.

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CBDC pioneers: Which countries are currently testing a retail central bank digital currency?

Jul 16, 2020 4:55:36 PM / by Jonas Weisbrodt, Jonas Gross posted in CBDC

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Medium

Central bank digital currencies (CBDC) are currently a hot topic. A study by the Bank for International Settlements (BIS) from January 2020 shows that 80% of worldwide central banks are engaged in CBDC-related research (Boar et al. 2020, p. 3). The percentage of central banks that run experiments or proofs-of-concept is also growing, reaching almost 50%. 10% of the surveyed central banks plan to introduce a generally available (retail) CBDC in the next three years and 20% in the next six years (ibid., p. 7). Therefore, CBDC efforts are very dynamic and are expected to even increase in momentum within the next few years.

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Libra — Concept and Policy Implications

Jul 2, 2020 11:56:37 AM / by Jonas Groß, Bernhard Herz, Jonathan Schiller posted in Diem

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Medium

The announcement of the Libra Association to issue a private global currency has triggered a heated debate about the concomitant advantages and risks. Proponents expect Libra to unfetter money from its “governmental chains” and liberalize and cheapen monetary transactions around the globe. Opponents argue that a private currency imposes unforeseeable risks for both individuals and the whole financial system. Furthermore, Libra could hamper monetary policies of national central banks. This paper contributes to the debate in two ways. First, we offer a comprehensive overview of the concept of Libra and its possible benefits and downsies to analyze its market potential. Second, we discuss potential implications that a private currency as Libra poses for monetary policy and financial regulation.

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How Will Blockchain Technology Transform the Current Monetary System?

Jul 2, 2020 11:41:28 AM / by Manuel Klein, Jonas Groß, Philipp Sandner posted in CBDC, Programmable euro

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Medium

Why should the payment systems we use and the money that is transferred via these systems itself make use of distributed ledger technology (DLT), namely Blockchain technology, the underlying technology of cryptocurrencies such as Bitcoin? This article gives a brief explanation of the structure of the current money and payment system and the functioning of blockchain technology with Bitcoin as an example. It further elaborates the advantages of DLT and its difference to the current design of the monetary system. The last chapter summarizes the different ways of how DLT can be used in our current money and payment system.

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China’s digital currency project: What is DC/EP all about?

Jul 2, 2020 11:38:50 AM / by Alexander Bechtel, Jonas Groß posted in CBDC

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Medium

Central bank digital currencies (CBDC) are becoming reality. On 16 April 2020, the Chinese central bank has started the test phase of its CBDC, called Digital Currency / Electronic Payment (DC/EP). It is currently tested in four Chinese cities: Shenzhen, Suzhou, Chengdu, and Xiong’an. China might be the first industrial economy worldwide to introduce a CBDC. This article outlines the current status of the DC/EP project and its economic and social implications.

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A digital currency against climate change: The way of the Marshall Islands

Jul 2, 2020 11:34:35 AM / by Jonas Gross posted in CBDC

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Medium

Central bank digital currencies (CBDC) are on the rise. More and more CBDC projects are now reaching the test stage and are approaching the actual issuance of the digital currency. In addition to China, this also includes the Pacific island nation of the Marshall Islands. But what distinguishes this project from other CBDC initiatives? With the help of an own CBDC, the Marshall Islands aims to combat the consequences of climate change.

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The Digital Euro and the Role of DLT for Central Bank Digital Currencies

Jul 2, 2020 11:28:02 AM / by Manuel Klein, Jonas Groß, Philipp Sandner posted in CBDC, Programmable euro

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Medium

Digitization has reached the monetary system. The advent of crypto assets, such as Bitcoin and Ether, revealed numerous advantages these digital assets based on distributed ledger technologies (DLTs) can bring: Using DLT can enhance the security of sensitive financial transaction data, increase
transaction speed through faster processing and settlement and automate numerous business processes through smart contracts. These advantages ought to be realized in the conventional monetary system as well — not only in the “crypto industry”. DLT can be used both to digitally represent bank deposits and to tokenize central bank money via central bank digital currencies (CBDCs). Current DLT-based CBDC projects and prototypes among others by the Chinese and Swedish central banks, but also initiatives by the European Central Bank (ECB), show that DLT will be an essential pillar ofthe digitization of the monetary system in particular and the financial system in general in the future.

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