The German private banks support the creation of a programmable account and crypto-based digital euro and say that its interoperability with book money ensured. The condition for this is establishing a common pan-European payments platform for the programmable digital euro.
Facebook’s announcement of its plans to launch a digital currency named Libra within twelve months has attracted considerable attention but also strong opposition worldwide. Policymakers, above all, have recognised that this initiative raises the question of what the global monetary system will look like in the digital age and who will shape it in the future.
Irrespective of this, the technological innovation of the Fourth Industrial Revolution will be the engine of structural change in the global economy. These innovations have the potential to once again radically alter the way we pay and how we store value. But it will need programmable digital money to make these innovations work. It has to be fully integrated into the existing financial system in order to avoid anti-competitive proprietary payment systems. The main burden of this public-policy task rests with central banks, governments, parliaments and regulators. But one thing is certain: banks in particular are challenged as well, since innovation and digital change will permanently transform their world.
We use digital money on a daily basis; we have long been familiar with it as book money in the form of credit transfers, direct debits, cheques or card payments. In Libra, Bitcoin, as well as Alipay and M-Pesa, there are now new forms that we do not yet fully know how to handle. What is certain is, firstly, that the emergence of cryptomoney increases the diversity of digital forms of money.
What is also certain is that – unlike with traditional digital money – the new forms of cryptomoney feature a significant technological innovation: they can be connected to so-called “smart contracts”. Smart contracts are computer protocols that map or verify contract terms and, for example, automatically initiate payments on performance of a transaction. That is why the industry also talks of “programmable digital money”. The private German banks are convinced that, in a digitalised economy, this form of digital money will rapidly gain in importance. Smart contracts can be connected not only to cryptocurrency but also to account-based book money. It therefore makes sense to distinguish between programmable and non-programmable digital money. Libra is crypto-based, programmable digital money.
Against this backdrop, the current discussion about Libra is merely one aspect of a major issue that goes beyond the envisaged “Facebook currency”. In this position paper, the Association of German Banks explores what contribution banks can make towards a sustainable and innovative monetary system, how the general environment should be designed so that banks can operate alongside new competitors, and what is needed to ensure the stability of the financial system.
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