Programmable money will be the trigger for governments to adopt blockchain
The original blockchain use case — bitcoin — involved making payments while circumventing government and banks. So there’s some irony that its latest local use case involves a big government agency and the country’s largest financial institution adapting the original blockchain to control how government payments are spent.
But blockchain innovation is full of surprises. Like the internet itself, what was briefly a rebellious technology is fast becoming mainstream.
The Australian Financial Review revealed today that Commonwealth Bank and the CSIRO’s Data61 unit have teamed up on a pilot that could see targeted payments made by the National Disability and Insurance Scheme (NDIS).
The blockchain will be a private version of Ethereum’s source code, running smart contracts that create “programmable money”. The plan is for this to sit on top of the Reserve Bank’s new, real-time payments system, the “new payments platform” (NPP), allowing the government to direct payments to NDIS participants for specific purposes in real time.
The emergence of programmable money as a government use case for blockchain comes after Data61 said in its landmark report on the new technology last year that “parties could attach policies on how parcels of money are spent or transferred, which would be self-enforced on blockchain as smart contracts”.
This will give governments control, transparency and auditability over what taxpayers’ dollars are being spent on. In the context of the NDIS, the government could program that a payment is only released if it is being made to a person accredited to provide a particular service. This will allow the government to track and audit its spending and reduce the potential for fraud. It will also help patients, who will know a particular service is claimable, reducing risk of their own spending being clawed back in a subsequent paper-based claims process.
Dynamic fiscal policy
This will be of interest to bureaucrats beyond the National Disability Insurance Agency. The Department of Social Services and Department of Human Services would be keen to know if welfare payments could be linked to spending on particular goods, such as groceries, and prevented from being spent on others, such as gambling.
As Data61 said in its blockchain report: “For government expenditure, it might be possible to programmatically control policies on the spending of parliamentary entitlements, grants, or social service payments; or more generally to implement forms of dynamic fiscal policy.”
The latter observation raises the prospect that when the government faces another financial crisis, smart contracts could allow it to ensure fiscal stimulus is actually spent in the particular sector it wants, such as retail, rather than just being saved.
Government payments could also provide the killer app for the NPP. The Reserve Bank’s head of payments, Tony Richards, said in a speech in Chicago last week that “the industry has ambitious plans for additional NPP functionality”. But the RBA also said a few months ago it was lukewarm about creating a “digital Australian dollar” (DAD), or eAUD, which would allow fiat currency to be programmed and to move across a blockchain. With this option not available, CBA is creating a “programmable token” that essentially functions like an IOU sitting on the traditional payment system. The system would be more efficient if an actual Australian dollar could be programmed. The NDIS’s interest in blockchain shows the potential for demand for a DAD to increase rapidly.
Insurers and banks will also be watching given programmable money could help target customer payouts and help banks meet responsible lending laws by ensuring borrowed funds are actually spent on what they are sought for, such as a car.
This project also says a lot about CBA. As the Data61 report noted, blockchain payments could potentially disrupt banks and the ability for the government to send funds directly to a service provider could circumnavigate banks moving payments and clipping the ticket along the way. But CBA figures it’s better to be an active participant in a disruptive technology like blockchain rather than being some kind of passive bystander.
Originally published at www.afr.com on October 8, 2018.
