Programmability for digital currency 

(MainsGS3: Indian Economy and issues relating to planning, mobilization, of resources, growth, development and employment.)


  • Central banks worldwide are actively exploring the concept of a central bank digital currency (CBDC) to complement physical cash and traditional banking systems. 

India’ s own digital currency:

  • India’s central bank and regulator, the Reserve Bank of India (RBI), aims to balance innovation, security, and regulation while developing a CBDC framework to offer financial inclusion, secure digital payments, reduced cash management costs, and real-time transaction monitoring benefits. 
  • The combination of CBDCs, regulated stablecoins, and smart contracts could serve as the medium of exchange in the digital asset ecosystem. 
  • However, the utility and programmability features of digital money require further discussion to ensure they don’t compromise its function as a medium of exchange and its fungibility.

Programmability models:

  • While modifying digital currencies’ properties and conditions could hinder their acceptance as a medium of exchange, reprogramming all existing currencies for new conditions would be impractical. 
  • Creating multiple versions of digital money with uniquely programmed logic is an alternative, but it risks fragmenting liquidity and reducing fungibility.
  •  Therefore, it is essential to explore diverse programmability models to maintain fungibility while expanding the potential of digital money. 
  • Such innovations could enable seamless exchange and ensure the viability of digital money as a medium of exchange in the ever-changing and diverse digital economy.

Purpose-bound money:

  • The Monetary Authority of Singapore (MAS) whitepaper introduces the concept of purpose-bound money (PBM), which aims to retain the fundamental characteristics of money while opening doors to programmability. 
  • The purpose-bound money design can be envisioned as a digital currency comprising an underlying store of value serving as collateral, encased within a layer of programmable conditions. 
  • This design allows using existing digital money for different purposes without altering its intrinsic properties. 
  • Once the programmable conditions are fulfilled, and the purpose-bound money serves its intended purpose, digital money can be used without limitations. 
  • By retaining control over digital money, the issuer avoids fragmentation and ensures digital money retains its characteristics.

Growing obsession:

  • The extensive development of CBDCs worldwide highlights a growing obsession with digital currencies. 
  • However, undue control of organizations or governments over individuals through digital currencies evokes unsettling visions of a dystopian future. 
  • While the possibility of governments exploiting these mechanisms and regulating people’s lives cannot be dismissed, it is still speculative.
  • Thus, programmable payments have already demonstrated value, benefiting businesses, societies, and individuals. 


  • It is important to perceive programmability as an experiment exploring the potential applications of digital money for specific purposes.
  • As this endeavour provides invaluable insights into simplifying transactions and settlements at the core of monetary operations, free from intermediaries. 
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