How CBDC Programmability Unlocks Innovation, Levels the Payments Playing Field

Programmability has been pegged as one of the major draws of digital currencies and one of innovative services that central bank digital currency (CBDCs) could help facilitate.

But there is a distinction to be made between programmable payments — setting predefined terms for a payment to be initiated — and programmable money.

In fact, at the EU level where a digital euro is being considered, the European Central Bank (ECB) has ruled out any possibility of the regional CBDC becoming the latter, a feature that would require the ECB to set limitations on where, when or to whom digital currency payments are made.

It’s a move that Martin Hargreaves, chief product officer at Quant, supports, as he pointed out the damage that restrictive measures on money movement can have on CBDC adoption and usage.

“When you start to place restrictions on money, you affect its value. So, if I’ve got £100 but I can only spend it on rent or groceries, that’s not worth the same to me as £100 that I can spend on anything,” Hargreaves told PYMNTS in an interview.

He added that towing that line will undermine any digital currency and be counterproductive to what governments are trying to achieve. “I can’t see that being a national policy anywhere because there are too many drawbacks to it.”

Looking specifically at the U.K., where the Bank of England (BoE) and British Treasury are exploring the feasibility of a digital pound dubbed “Britcoin,” he said there are ways to bring the benefits of programmability to the CBDC.

For example, the U.K., like other nations considering CBDCs, can leverage digital currencies to limit the control and power that Big Tech firms, major card networks, acquirers and payment networks wield over how, when and to whom consumer payments are made.

Programmable payments within CBDCs can also level the playing field and help smaller companies better compete with larger corporations engaged in status quo bias, unlocking new levels of innovation in markets.

“If you’re a large company and you're generating huge revenue from the way that things are now, you probably wouldn’t want to see a new point-of-sale system that bypasses the way that things work today,” he argued.

Real-Time Payments, Privacy Concerns

Real-time payments adoption in the U.K. has increased significantly over the years, with the launch of the Faster Payments initiative back in 2008 to accelerate secure funds transfer between U.K. bank accounts.

Despite officially leaving the EU, the country is also one of 29 countries to have adhered to the EU’s SEPA Instant Credit Transfer (also referred to as SEPA Instant or SCT Inst) real-time payments scheme, enabling consumers to clear cashless payments in seconds across the Single Euro Payments Area (SEPA).

Against this backdrop, Hargreaves said the U.K. government will have to make a strong case for Britcoin, especially when access to instant payments is already part and parcel of consumers’ everyday lives.

“That’s the real challenge for those designing the CBDC, which is to come up with something compelling enough that will interest consumers enough to open a CBDC account and actually use it,” he said.

When it comes to privacy, Hargreaves said there’s been a lot of fear and uncertainty created by some market players, especially in the U.S., where CBDCs are seen as a threat to financial markets.

But he dismissed such concerns, pointing to a conscious effort by regulators to ensure that the digital pound is on par with other payment systems in operation today. “From a policy point of view, I don’t think central banks would want to [take any chances], so from a privacy point of view, I suspect that it will be [similar] or better,” he argued.

Overall, he said undue oversight and control of people’s personal finances via CBDCs is a high-level problem that will be determined by the national political culture created by each country’s government.

“China’s CBDC is pretty invasive, it watches everything,” he pointed out. “In the U.K., however, we’ve got things like the Tube [London’s rapid transit system] that can track all your journeys, but we don’t do it. All of that data is private and leaves with you.”

Finally, what remains unclear is how the Britcoin will support offline payments — a dilemma which leaves more questions than answers today, he said: “Would offline payments be reflected back into a ledger, or will they just be completely anonymous? We’re still waiting to see what the answer will be on that one.”

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