Imagine if a merchant could issue real time rewards to customers, specifying the exact characteristics of that reward. For instance, a retailer could give a 40% discount to people who make a purchase in the next four hours and are within four kilometres of a specific location. That could be a reality in the future.

That’s because the digital currency we could be using in the near future will be programmable. Along with being able to represent monetary value and ownership, programmability of digital currencies could unlock new types of transactions.

Of course, concerns exist around the potential misuse of programmability and the possibility it could reduce financial flexibility and privacy. There are questions about data privacy, currency restrictions and government overreach.

This highlights the need for careful consideration and balanced implementation of programmable digital currencies.

Used in the right way, I think programmability could be one of the major benefits of digital currencies and has the potential to transform the way we use money in the future.

Future potential

Programmability could be applied to a variety of scenarios by facilitating mutual incentives for transacting parties, improving fund distribution effectiveness, or automating processes, such as escrows. You’d no longer need a third-party escrow agent to hold capital because the digital currency could be sent, but programmed so the funds are not released until the conditions of the escrow are met.

This same capability could help to fight fraud. There are an increasing number of fraudsters selling goods online that either don’t exist, don’t arrive or, if they do, are totally different to those advertised – digital currencies could help to prevent this.

You could send the money but if you don’t receive the goods or you get an item that you didn’t ask for, the smart contract programmed into the digital currency could automatically return the funds.

Leading role

With 56% of the banknotes in circulation in Hong Kong issued by HSBC, it’s important for us to be at the forefront of digital currency development.

We’re working in partnership with many central banks and industry associations to advance digital currency initiatives, including those backed by central banks and commercial banks, like us.

CBDCs explained

<p>A CBDC is a form of digital currency that’s issued by a central bank rather than a commercial bank.</p>

We’re part of Project mBridge – the largest cross-border wholesale Central Bank Digital Currency (CBDC) pilot to date, which has facilitated efficient and near instant cross-border trade settlement transactions in AED, CNY, HKD and THB.

Digital pilot

We recently took part in a Hong Kong Monetary Authority pilot examining potential use cases of CBDCs and digital currencies in retail scenarios.

The pilot found our infrastructure supported smart contract programmability that automated reward payments to customers for transactions that met pre-defined conditions.

Although plenty more exploration and consideration is required, the potential benefits and innovation of programmability are endless.

Digital currency: Our pilot in Hong Kong

See what happened when 200 students took part in our two-week, hypothetical e-HKD pilot at HKUST Business School.