German industry requires digital money for the seamless execution of its new business processes. This digital currency needs to be trustworthy, secure, fungible, and cost-effective – and it must be integrable into industrial processes based on Distributed Ledger Technology (DLT), the technological framework for blockchain. In recent years, commercial banks have been developing blockchain payment models to meet the needs of Industry 4.0. A new feasibility study, conducted in collaboration between industry and the banking sector, demonstrates that viable paths are now emerging. Much remains unresolved in this new field, but plans are already underway.

Unlike central banks, which provide central bank money such as cash, commercial banks operate in a tightly regulated environment to provide fiat money. They handle complex payment transactions for industry. The European Central Bank's plans for a digital euro focus on central bank money and target consumers. But industry requires more advanced transaction options.

A project group comprising leading industrial companies and banks has tested various practical use cases with a Commercial Bank Money Token (CBMT) for over six months. The result: this new form of fiat money is technically feasible and applicable in different scenarios. The industrial sector participants included Airplus, a provider of payment solutions for businesses, as well as BASF, Evonik, Mercedes-Benz, and Siemens. On the banking side, Commerzbank, Deutsche Bank, DZ Bank, Helaba, and HypoVereinsbank/UniCredit were involved. The Federation of German Industries (BDI) and the German Banking Industry Committee (DK) have jointly published a report on the fundamental feasibility of a bank money token.

„We're pleased that the project group has reached this positive outcome“, Sven Schönborn, Managing Director of the BDI Committee on Corporate Financing and Financial Markets, told Börsen-Zeitung. „This is an important step forward in developing new forms of money that are tailored to the needs of German industry.“

The results confirm that the fiat money token meets a range of requirements: it provides a reliable payment medium suitable for numerous applications across various business functions and serves as a versatile settlement instrument. The token operates on multiple DLT platforms and has the potential to scale up. It should also be feasible to integrate it into existing systems through application programming interfaces (APIs).

The feasibility of the fiat money token has been under investigation since 2020. According to the BDI, the project was initiated by the industry's interest in a new form of money incorporating emerging technologies like DLT, to complement payment processes in Industry 4.0. The project follows a BDI study from 2022.

In the report, the industry association had identified the need for a digital euro based on blockchain technology, ideally issued through both the Eurosystem and the financial sector. The current feasibility study builds on this by exploring functional use cases, including simple money transfers and more complex corporate payments, in three different environments. These include basic customer money transactions within and between banks, as well as more intricate cases involving working capital optimisation across currencies, and regular payment flows. The tests were conducted in a „sandbox“, isolated from actual money, and certain aspects like compliance considerations were not yet included in the assessment.

The push for a fiat money token is driven by the digital transformation of industrial workflows for Industry 4.0. This involves process automation, but also innovative DLT-based business models. Traditional forms of money are reaching their limits in such applications. The new ecosystem requires synchronous, self-managing payment flows, and the German industry needs a secure form of money based on blockchain technology.

Many practical applications are conceivable. For instance, robots could automatically receive payment for their services to other companies or clients. Autonomous vehicles could be paid with tokens. Tokens could also cover other expenses, such as parking fees or tolls for rental cars, making business processes more flexible and efficient. This would benefit users with increased convenience and the industry with cost savings and resource efficiency.

While banks are not strictly necessary for DLT technology, as companies can transfer funds directly from wallet to wallet, a fiat money token offers advantages for both sides: According to the report, a token issued by various banks would enable regulated money management for both corporate treasuries and financial institutions. This could better address default risks, and optimise working capital management.

„We aim to adapt today's fiat money to the needs of our industrial clients“, said Frederik Schubert, Project Manager for Digital Euro at the German Savings Banks Association DSGV (which currently leads the DK), in a conversation with Börsen-Zeitung. „We have evolved existing account-based fiat money into token-based fiat money.“ This technological innovation in payment transactions benefits both companies and banks. Firms process financial and business transactions within the same system, achieving efficiency gains. „The value chains of industry and banks are merging“, Schubert noted.

Current private and public forms of money cannot achieve this, as they are not available on the blockchain. While stablecoins, backed by assets, are available on the blockchain, the fiat money token is designed to function with all the characteristics of commercial bank money – but in a different technical form. The fiat money token, which is backed by liabilities in a regulated financial institution's balance sheet, is account-based and connects to deposits. For the industry, it is crucial that tokenised fiat money will be treated the same as commercial bank money with regard to accounting, taxation, and legal issues. This is important for finance departments. Stablecoins, on the other hand, operate under a different legal framework and are seen as lacking value stability and regulatory simplicity, causing concerns about friction and systemic risks.

The DLT-based commercial bank money token is designed to offer the benefits of commercial bank money without creating new financial infrastructure. Instead, it is intended to integrate into the industry’s business processes. Companies are expected to establish the rules for these new money transfers. Key design principles include interoperability, secure programmability, and robust governance, alongside compliance with legal requirements to ensure the token remains within the current legal framework when operated on various DLT platforms. There is no pre-defined DLT platform. The industry should use the platform that best suits its needs. Testing was conducted on the R3 platform for straightforward money transfers, on Nexi for optimizing working capital, and on EPN for currency transactions.

The fiat money token has another unique feature – it relies on traditional interbank processing. Thus, the token can function on various DLT platforms without the need for a digital central bank currency (wCBDC) or a Unified Ledger connecting financial asset markets on common programmable platforms. A key role is played by the technical service provider, which offers shared services to participants. Its responsibilities and duties are already defined and will be further refined.

Through this feasibility study, banks and industry hope to influence the development of the digital euro at the ECB. „We hope that this project will prompt the Eurosystem to recognise the significance of industrial application opportunities and consider them in the digital euro project“, Schönborn stated.

Currently, the ECB is working on a retail Central Bank Digital Currency (rCBDC) and has not yet considered industrial use cases, according to the report. The BDI and DK express regret over this, but believe a discussion is emerging about including such use cases and issuing the digital euro as a token.

„Commercial bank money has the right characteristics to be a secure form of on-chain money“, the report states. It is also crucial for facilitating economic activities by providing funds for transactions, investments, and savings.

Ongoing discussions with regulatory authorities, including the ECB, Bundesbank, and BaFin, are exploring how the fiat money token can become a reality, and what regulatory issues need to be addressed. A pilot project is already planned to test the integration of the token in a real environment with actual money. Support from regulators is needed to link the processes with the systems in financial institutions.

Additional aspects will also be examined, which were not sufficiently addressed or not addressed at all in the previous project. These include data protection, as well as the integration of banks and companies. More banks will be involved, and the range of industrial companies and technology providers will be expanded. The goal is not only quantitative expansion but also to enhance system resilience and functionality. Much remains to be done, but one thing is certain: the success of the fiat money token will depend on close collaboration within the German banking sector. This has often been a challenge for them in the past.