What is programmable money?
Traditionally, when we think about money, we think about fungible assets. One dollar = one dollar. Stablecoins are also fungible assets, but we can imagine creating stablecoins on top of stablecoins and then including other conditions on the newly minted wrapper coin.
One such condition could be that only those users whom have previously been approved (via a KYC process, for example) are allowed to transfer this stablecoin. Or they might only be allowed to use this coin at certain venues. This ability to add conditions on top of an otherwise fungible asset is what’s referred to as programmable money, or designer money. These properties and conditions remain irrespective of the current holder.
Some will argue this is censorship, but we can imagine cases where such limits would prohibit intermediaries from stepping outside their instructions. This could help remove third party risks.
The above can also be applied to CBDCs (Central Bank Digital Currencies), where the central bank will “program” the parameters around supply and other characteristics. To some extent, this is what we have seen with native cryptocurrencies, where the minting and burning process is coded into the protocol, enabling stability around their monetary policies.
We are still early days with regards to what this means, but one could argue that, depending on the conditions programmed into the token, it should no longer hold the same value as the underlying. Market dynamics and risk profiles will help determine this. Taken to the extreme, we would return to bartering, where, due to all the variations of programmable money, goods and services are exchanged without the use of (direct) money. This was historically inefficient, as you couldn’t be sure the seller would want to trade what the buyer had to offer in return. But, with blockchain and decentralized exchanges, many of these inefficiencies can be removed as global price discovery and shared liquidity pools for a long tail of assets would be available.
This sort of development would fit into the broader move towards decentralization in general, but it remains to be seen if it is simply a step too far.