## 2 Related Work
### CBDCs as Programmable Money  
Central banks work closely with other government departments. For example, in the UK, the Bank of England works with HM Treasury and HMRC, where CBDCs have a new and major role to play. Namely, CBDCs have heralded the advent of programmable money, enabling controlled policy implementation for these departments and overall governance improvement.  
Conventional money has been hitherto issued, stored, and spent in digital form but has only served as a blunt instrument strictly corresponding to value. Developments in distributed ledger technology have the potential to add an important feature to money, thus making it 'programmable' [24]. This property enables a number of new capabilities such as payments conditioned on rules or events [65], delivery versus payment (DvP) settlements [24], or auto-pay bills formalised into multi-party payment contracts in order to permit net instead of gross money flows [66]. Central banks' interest in programmable money is emerging and causes them to rethink the interface to money [67]. Unfortunately, this interest remains mostly constrained to the potential for regulating cryptocurrencies [68] or for micropayments, which are moot points and overlook the potential of programmable money for improving governance and policy implementation.  
The functionality of smart contracts, which is to run generalised programs on a shared blockchain [67], creates new capabilities for central banks and governments by utilising  
Figure 1: Central bank digital currency models.  
programmable money as a multiplier of public policies, e.g., monetary, financial, and fiscal policies. This brings opportunities to transform the traditional role of money and the way that public policy is informed and applied. With DLT-enabled payments, purchases of goods and services can trigger VAT split payments to the tax authority so that sales tax is paid directly. The concept of DLT-enabled real-time tax payments was put forward by [69] as a means of simplifying accounting and reducing administrative burden for businesses. Neither a practical implementation nor a design were, however, included. Reference [70] has proposed a VAT settlement solution where the entities involved (seller, buyer, banks, tax authority, and auditor) are participating in an Ethereum-based DLT network. In the evaluation, the proposed software artifact does not transfer funds between any accounts, i.e., seller, buyer, or tax authority, nor does it confirm any account balances during the transaction. It serves exclusively as an accounting system but does not initiate or process payments. Transaction information is publicly accessible, which poses confidentiality risks for the counterparties. Furthermore, the software artifact has not been empirically tested for scalability. In terms of enforcing tax compliance, the proposed artifact poses certain risks: VAT settlements are validated by an 'auditor' instead of the tax authority directly, which is not a proper assurance mechanism for tax compliance; also, the VAT payment is made by the seller instead of the buyer. This may cause the payment to fail if the seller is overdrawn and the balance is insufficient for fulfilling the tax payment. Therefore, the works of [69; 70] cannot be considered as 'programmable money' applications for VAT split payments.  
In addition, the government can issue special-purpose'money' within the context of social benefits to be used for particular classes of goods and to ensure that public funds are spent for the benefit of the polity. Further, programmable money can be tracked and traced, facilitating 'follow-the-money' investigations on behalf of law enforcement in the pursuit of money laundering and terrorism financing. It is evident that the 'programmability' property assigns new functionality to money, which can now operate as an information sensor and a policy actuator that enables governments to utilise money to develop and enforce policy concerned with tax collection and social care.