Digital, Programmable Euro: From Paper to Programmable Money

Introduction

In recent years, there has been exponential growth in the awareness and implementation of blockchain technology in the last four years. Starting from 2015, blockchain technology has gained widespread usage, compared to the awareness and trust that blockchain technology had at the time of its introduction in 2008 (Yli-Huumo et al., 2016). There has been significant research and innovation going on blockchain technology around the world, along with finding the possible applications of the immutable, trustless, decentralized, and consensus characteristics to find its applications in the field of finance, industrial and social sectors. Due to this hype about blockchain technology and the exaggeration of its benefits, there have been misplaced expectations and also unknown misunderstandings of this technology. The existing financial industry is based on a centralized trust-based infrastructure. Blockchain promises a secure distributed framework to facilitate sharing, exchanging and integrating digital information across all users and third parties (Yaga et al., 2019). Adopting blockchain in the finance industry and its databases and smart contracts in automated transaction systems can increase the dependability and provenance of financial systems. Blockchain is immutable and trustless, giving a new opportunity for people to send money to people in a peer-to-peer mechanism across the world in an insignificant time (Zheng et al., 2017).

Blockchain technology led to the development of cryptocurrencies that aim to disrupt fiat money. These are digital currencies with different monetary supply systems and transaction networks, much like Bitcoin. Cryptocurrencies are community-based digital currencies developed and widely adopted as instruments for incentive and governance programs, internal rewards, and customer loyalty programs in closed-form environments. To protect the customers' interests in the traditional banking system and compete with digital currencies, central banks worldwide have also started exploring distributed ledger technology to develop central bank digital currencies (CBDCs) (Barrdear & Kumhof, 2021). A critical difference between CBDCs and cryptocurrencies is that the rules governing CBDC networks are set by a central bank. In crypto networks, the user base, which makes decisions by consensus, is given authority. In this context, this research discusses using distributed ledger technologies and smart contracts in creating CBDCs using digital euro as a case study of existing experiments around this concept.