Decoding Programmable CBDC - What's for Banks & Fintech

Programmable Central Bank Digital Currency (CBDC) refers to a digital form of a country's fiat currency issued by the central bank, which incorporates programmable features.That can be controlled, automated, and manipulated through code or smart contracts. The emergence of digital currencies has generated interest in programmable money, which allows digital currencies to be programmed for specific purposes.

Programmable money in payment transactions can be utilized in various ways to enhance control and efficiency:

1. Spending Conditions: Funds can be designated for specific purposes, such as rent or utilities payments, ensuring that they are used only for intended expenses.

2. Time-Based Restrictions: Funds can have expiration dates, encouraging prompt utilization and preventing hoarding.

3. Targeted Disbursements: Money can be automatically distributed upon meeting certain criteria or milestones, such as completing educational courses or reaching financial goals.

Programmable CBDCs offer exciting opportunities for banks and fintech companies to improve efficiency, drive innovation, and promote financial inclusion

Reserve Bank of India (RBI)'s announcement of a Programmable Currency has opened up numerous use case possibilities for CBDC. Programmable eRupee could refer to a digital currency that can be programmed to execute certain actions automatically when certain conditions are met. For example, it could be set to transfer funds between accounts, trigger payments, or even execute smart contracts.

Programmable eRupee could be a significant innovation for banks and fintech companies.  RBI said that programmability will enable government agencies to ensure that CBDC payments are made only for defined benefits. For corporates and enterprises, the expansion of the CBDC facility will allow them to program specified expenditures such as business travel for their employees, said the central bank.

New opportunities for Banks & new age Fintechs

Banks and fintech companies could integrate this programmable currency into their systems, offering customers new ways to manage their finances, automate transactions, and access innovative financial products. The programmable aspect may involve the use of smart contracts, which are self-executing contracts with the terms of the agreement directly written into code. This could enable automatic execution of transactions based on predefined conditions without the need for intermediaries. Users or institutions might be able to customize the behavior of the currency to suit their specific needs or business models. This could include setting rules for spending limits, transaction frequencies, or conditional payments.

Programmable money enables the tokenization of real-world assets. This can represent ownership of physical assets, and transactions can occur in the form of tokens on a blockchain, streamlining the payment process for assets like real estate or commodities.

In recent Monetary policy, RBI proposes distribution of CBDC through non banks; seeks to broaden retail access to digital currency, this will be game changer for CBDC adoption in India.

Programmable, offline CBDC to drive next fintech wave, says NPCI MD Dilip Asbe.

https://inc42.com/buzz/rbi-to-pilot-offline-programmable-retail-cbdcs/

https://www.linkedin.com/pulse/programmable-money-its-use-cases-payments-ram-rastogi--cl6hf/

https://economictimes.indiatimes.com/news/economy/finance/rbi-adds-increased-functionality-to-cbdc/articleshow/107519990.cms?from=mdr

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Bank for International Settlements – BIS Reserve Bank of India (RBI) Swift CBDC Digital Euro Association MIT Digital Currency Initiative (DCI)