Why “Programmability of Payments” Matters For Crypto and CBDCs

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As more than 100 CBDC experiments evolve, there are extremely conflicting ideas on how they should be created. Should money be censor-less? Should controls be embedded on where and when money can be sent? There are extreme pros, cons, and risk in each question, and it starts with understanding the distinction between the programmability of payments vs. the programmability of money.

One of the features of digital money is the ability to program the money with specific conditions for use or automatically execute payments based on preset conditions.

As governments worldwide explore the possibility of launching central bank digital currencies (CBDCs), one of the concerns is the potential to control how, when, and where citizens spend their money.

It is essential, therefore, to distinguish between the programmability of money and the programmability of payments rather than use the terms interchangeably.

The Significance of Programmability

What is the difference between the programmability of payments and the programmability of money?

  • Payments: A basic form of programmable payments already exists, including direct debits and standing orders. However, wider applications for automatic payment execution are limited by the challenges of implementing complex logic. Introducing smart contracts built on distributed ledgers offers greater flexibility and functionality.
  • Money: While the programmability of payments refers to the automation of transactions, programmable money goes beyond transactions to issue money embedded with specific properties and complex programmed rules. This can include restricting how money can be spent, making targeted transactions such as helicopter payments, or programming the money to increase or lose value over time. These rules can be interoperable across network-connected devices. Programmable money is self-contained as it incorporates both the programming logic and the store of value.

The possibility that programmable central bank money could allow governments to control spending or that a digital currency may not retain the face value of its physical equivalent could undermine public trust in CBDCs and hamper adoption.

Smart Contract Functionality in CBDCs

Digital payments can be facilitated by smart contracts, which run on blockchain networks and are executed automatically by fulfilling certain conditions, such as transferring tokens between digital wallets.


Smart contracts, such as those that run on the Ethereum (ETH) blockchain, have three key features:

  • Programmability: Smart contracts enable payments automatically by triggering the specific logic that transfers money. This can have diverse applications, such as purchases of goods and services or interest payments.
  • Defining money: The coding of smart contracts can set specific properties, such as limitations on transaction sizes and whitelisting of recipients. This is key for complying with regulatory financial services requirements such as anti-money laundering (AML) and know-your-customer (KYC).
  • Tokenization: Smart contracts can generate digital currency tokens and enable the tokenization of assets such as fiat currencies and physical items, creating new possibilities for digital transactions.

CBDCs can potentially use smart contracts to streamline complex international transfers of funds, for example, by automatically triggering a payment in a certain currency once the money has been received in another currency.

In the commercial banking system, institutions can use wholesale CBDCs or digital tokens, such as JPM Coin, to make programmable payments. Combined with real-time 24/7 payment capabilities, these tokens can use programmable payments in automated treasury management to handle balances from multiple accounts in different currencies and optimize transfers in response to real-world conditions.

Conditional programming can also reduce the cost of escrow arrangements, as funds can be reserved and the payment triggered when the products, services, or assets are delivered.

Programmability of CBDCs

To address privacy and government control concerns, some countries are preparing to launch their CBDCs without programmability of money.

The European Commission consulted money’s programmability and indicated that it would be a function of a digital euro.

Fabio Panetta, Member of the Executive Board of the European Central Bank (ECB), recently told the European Parliament’s economic and monetary affairs committee:

“Let me be clear: the digital euro would never be programmable money. The ECB would not set any limitations on where, when, or to whom people can pay with a digital euro. That would be tantamount to a voucher. And central banks issue money, not vouchers.


“We are also aware of some people’s concerns that a digital euro could harm the confidentiality of their payment data. When it comes to the central bank, we propose that we do not have access to personal data.”

It will be up to legislators to determine the balance between privacy and other important objectives like anti-money laundering, sanctions compliance, counterterrorism financing, and preventing tax evasion.

The ECB has been “working on solutions that would preserve privacy by default and by design, thereby giving people control of their payment data” and “closely engaging with the European Data Protection Supervisor and the European Data Protection Board” to that end.

While the EU indicates that it will not include programmability in the digital euro, other countries are not shying away from including such features.

To Pay or Not to Pay?

In January 2023, the Chinese CBDC, the digital yuan (eCNY), was upgraded to include smart contract functionality. Chinese ecommerce app Meituan, which provides consumer delivery services, was the first to use smart contracts that search for the merchant’s name and keywords in the description of the products purchased. When certain keywords are found, the user automatically receives a share of a daily prize paid into their wallet.


The Monetary Authority of Singapore (MAS) has stated that a “purpose-bound digital Singapore dollar” would allow senders to specify the conditions for how the money they transfer is spent. Uses could include government voucher programs that would only be able to be spent on food and drink, skills training, or specific commercial activities and may only be used in a defined timeframe.

If CBDCs from various countries incorporate different forms of programmability, they will still need to interoperate to support cross-border transfers and payments.

Central banks like MAS have been collaborating with central banks in other countries to test the interoperability of their pilot systems.

If some public CBDCs implement programmability of money while others do not, wholesale CBDCs or commercial bank deposit tokens will facilitate information sharing, AML, and sanctions compliance.

A bank could issue deposit tokens that customers of other banks can hold, allowing circulation across jurisdictions. Each jurisdiction has its regulations on currency controls and sanctions, while each bank also has its mechanisms.

These rules would need to be implemented as programmable payments rather than programmable money, as they are fundamental to the movement of all funds and not one-off conditions and would be technically impractical.

Deposit tokens can be issued with basic universal rules and additional rules that apply when they enter a particular jurisdiction and are removed when they leave that jurisdiction.

The Role of Digital Wallets in Enabling Programmability

The programmable payment functionality of CBDCs will be enabled by smart digital wallets, which can store digital cash as tokens. Wallets can be encoded to execute the conditions that automatically trigger payments.

While cryptocurrency wallets are typically designed as smartphone applications, they could be implemented on Internet of Things (IoT) devices and smart cards.

Smart wallets would allow public bodies, financial institutions, businesses, and individuals to set specific conditions for the transfer of funds.

Central banks could encode rules that apply to all digital wallets registered in the country and cannot be changed by other parties. This could include limits to the amount of money a single wallet can hold to limit money laundering and reduce risks to the stability of the wider financial system.

For instance, the Bank of England considers a limit of between £10,000 and £20,000 per individual “as the appropriate balance between managing risks and supporting wide usability of the Digital Pound”.

Governments could also use programmability to directly pay citizens subsidies for energy, childcare, and so on or provide a stimulus for spending on environmentally friendly products and services.

Financial service providers could send payments to customer wallets and collect credit repayments. At the same time, companies could issue employees with wallets programmed with specific conditions—for example, only allowing them to purchase certain items.

Consumers could define their own rules for their wallets, for example, setting household spending limits or blocking children from purchasing alcohol or cigarettes.

Intelligent devices like household appliances or connected electric vehicles could link to consumers’ smart wallets to automatically pay for charging or supplies.

CBDCs will no doubt be implemented in different ways in different countries. Some countries are focused on keeping pace with the digitalization of their economies and ensuring fiat currency remains dominant amid the growing adoption of privately-issued digital money such as cryptocurrencies and stablecoins.

Other countries are proceeding with CBDCs to expand financial inclusion and increase the efficiency of interbank and cross-border payments.

The Bottom Line

The impetus worldwide for governments to introduce CBDCs and for commercial banks to adopt deposit tokens raises concerns about the control of citizens’ money.

Against this background, it is important to understand the distinction between the programmability of payments and the programmability of money.

Various governments will take different approaches depending on their policy values as well as citizens’ attitudes, and commercial banks will likely have a role to play in ensuring interoperability across borders.


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Nicole Willing
Technology Journalist
Nicole Willing
Technology Journalist

Nicole is a professional journalist with 20 years of experience in writing and editing. Her expertise spans both the tech and financial industries. She has developed expertise in covering commodity, equity, and cryptocurrency markets, as well as the latest trends across the technology sector, from semiconductors to electric vehicles. She holds a degree in Journalism from City University, London. Having embraced the digital nomad lifestyle, she can usually be found on the beach brushing sand out of her keyboard in between snorkeling trips.