Deutsche Bundesbank – distributed ledger technology, smart contracts & programmable money

Deutsche Bundesbank, the central bank of Germany, has acknowledged that the existing payment systems are getting outdated. Therefore, the new solutions are needed and these rely on technology related to blockchain, smart contracts and programmable money. Innovation in the field of blockchain technology is creating new opportunities and new tools for traditional financial institutions. 

German central bank is discussing the role of programmable money in a paper “Money in programmable applications. Cross-sector perspectives from the German economy“.  Here Deutsche Bundesbank is focusing more on distributed ledger technology (DLT) instead of public blockchains. Existing innovations can lead to better automation of payment related services. “Distributed ledger technology, which uses tokens to represent real goods and services and allows these to be traded digitally, makes it possible for flows of services to be programmable, autonomous and automated.” – Deutsche Bundesbank. 

Key takeaways from the research of the German central bank

  • Requirements for programmable payments: interoperability, ability to innovate, cyber resilience and data protection.
  • Programmable money with “digital coins” would provide an ability for a complete synchronisation of the flow of goods and cash, but it requires significant technological innovation.
  • Programmable payments do not necessarily need programmable money (“digital coins”).
  • Smart contracts can play a key role in providing automated financial services.
  • Private crypto-tokens and stablecoins are technically capable, but for major institutions it appears to be too volatile, have limited interoperability and have issues regarding legal certainty.
  • Tokenised commercial bank money and central bank digital currency can be considered to be suitable solutions. On the other hand, central bank digital currency might have far reaching consequences and needs to be investigated in more detail.

Possible use cases for distributed ledger technology

M2M payments: Fully automated settlement between devices (machine to machine).

IoT payments: Payments in the internet of things (IoT), which can be initiated by interaction with the end customer, unlike M2M payments.

Automated settlement payments: DLT-based settlement of a transaction, including the cash leg. For example, a smart contract can take over the control of contract processing (e.g. event triggered payment flow) or act as a virtual trustee to eliminate settlement risk.

Pay-per-use payments: Direct payment of an amount depending on consumption/use.

Bidirectional clearing: Settlement of many mutual claims/liabilities between counterparties.

Cross-border payments: Cash leg settlement of cross-border business. A reduced number of
intermediaries involved, improved standardisation and greater transparency are necessary for efficient cross-border payments.

24/7 payments: Payments made outside the availability periods or amount limits of “conventional” systems.

Payments as information function: Integration of payment and information or communication systems: payment is designed to contribute to process and data integration across enterprises.

Offline payments: Technical bridging of temporary or permanent disruptions to internet access as well as integration of non-internet enabled devices.


Source: Deutsche Bundesbank “Money in programmable applications“, 21 December 2020.

programable money deutche bank