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Recently Professor Dr Philipp Sandner, head of the Frankfurt School Blockchain Center (FSBC), and Jonas Groß and Jong-Chan Chung, who are project managers at the FSBC, conducted a study on how DLT-based payment systems and a programmable euro can promote innovative business models for the economy. Furthermore, the study recommends actions to strengthen Germany as a financial centre. 

By Arnaldur Skorri Jónsson

With business processes in Germany’s real economy and within the financial sector becoming increasingly complex, their current payment infrastructures are unable to address the needs of new business models. The study points out that infrastructures such as SEPA or TARGET2 are unable to service said business models due to the complexity of their data synchronisation, which can lead to system discontinuities, and “counterparty risks arising from the asynchrony between delivery and payment cannot yet be entirely avoided.” This furthers the  need for payment solutions that eliminate the inefficiencies of current infrastructures and lay a foundation for promising business models. 

A solution in the form of a programmable euro can be essential to promote innovative business models for Germany. As the European Central Bank (EBC) is unlikely to provide such a solution before 2026, Germany’s private sector is called on to develop it in a timely fashion. 

“A programmable euro developed using Distributed Ledger Technology (DLT) by institutions and the private sector would meet the requirements of the real economy and the financial sector” while also addressing the current monetary system’s limitations. Potential configurations of this could be 

  1. Stablecoins issued by (as yet) unregulated companies
  2. Tokenized commercial bank money issued by financial institutions 
  3. Tokenized e-money issued by e-money institutions 
  4. Trigger solutions combining conventional payment infrastructures and DLT.

The study conducted demonstrates how a euro payment solution based on DLT can address the current payment system’s inefficiencies while enabling innovative business models. The study describes specific use cases and recommends proactive support of corresponding innovations. To keep up with the increasing digitisation of business processes, DLT-payment solutions will supplement traditional payment systems in the future. “DLT infrastructures additionally enable, among other things, immediate, secure, and automated transactions.”

Introducing a programmable euro would support numerous innovative use cases for the financial sector as the real economy. For instance, within the manufacturing industry, it could contribute to effective liquidity management and create new lines of business. “While the decentralised nature of DLT would also imply that efficiency gains can be achieved in supply chain management as parties are required to trust one another as well as the underlying technology.” Smart contracts could also enable automated and efficient purchase and sale processes within the energy industry, while the financial sector would gain from using DLT-based digital securities and interbank payment processes. A programmable euro would represent an efficient payment option for all of these possible DLT applications. While also “enabling micropayments and digital DvP transactions (among others), providing the building blocks for the industry of the future.”

To promote the development of the programmable euro, “it is essential to remain in close consultation with all relevant stakeholders, including policymakers, financial supervisory authorities, financial sector organisations, private companies and consumers.” As industry adoption is crucial to its development, along with minimizing potential compliance risks. 

Additionally, to guarantee standardisation, interoperability and fungibility of the payment solutions, cross-company collaboration within industries is a necessity. In particular, “the interoperability of the various DLT protocols should be a focus for all parties since the potential of DLT can only be fully realised through services that can be used interoperably.”

Thereby, the European business community should agree on a common solution so that the euro can remain a global means of payment. While a “far-sighted, transparent, and technology-neutral legal framework is also essential for the development of a programmable euro.” Key elements include the compatibility of the programmable euro with Europe’s data protection provisions, contract law and securities law. In order to gain the trust of investors and advance practical projects involving the programmable euro, the resulting legal certainty is required and advocated by the study in question along with the Finanzplatz München Initiative (Munich Financial Centre Initiative – FPMI). 


About Frankfurt School Blockchain Center (FSBC)

The FSBC is a think tank and research center focused primarily on investigating the implications of blockchain technology. In addition to general research and prototype development, the FSBC serves as a networking hub for managers, start-ups, and experts to exchange knowledge and best practices. The FSBC also organizes educational opportunities for both students and executives, including on-campus courses, workshops, and conferences.


Photo by Markus Winkler on Unsplash

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