In the not too distant future, money will become "smart". Today, money is a general-purpose medium of exchange with an unrestricted usage, i.e. money can be used by anyone to pay for virtually any product or service anywhere. In contrast, besides seamless real-time payments, the future payment infrastructure should offer opportunities to customize payments with sophisticated money that portrays a set of customizable conditions in addition to monetary value– i.e. smart money . In essence, smart money is value exchange instrument that is based on computer protocols which facilitate, verify, or enforce preset conditions for its appropriation as payment, that is, who may use the money, what products and services can be bought, when something can be bought, why something might be bought etc.

Smart money can be used by society, organizations or individuals to manage the appropriation of money and its use as a customizable medium of exchange. Consider the following example on individual level:

Gill and Mark, two loving parents, have decided to restrict Peter’s (their 15-year-old son) use of his weekly allowance. Peter often used his lunch money to buy hamburgers and sodas. The transfer of the weekly lunch allowance goes from Gill and Mark’s bank account to Peter’s mobile wallet. On the balance page, he can see how much money he has on his mobile wallet and on his bank accounts. The amount of virtual cash is displayed in a pie chart diagram (green, red, and blue) with the amount on. The green pie is money to be used for school lunch. Red money is for clothes. The blue money is to be used for any purpose. The green and red money are the designed money from his parents to buy lunch at school and a new pair of jeans and cannot be used for anything else. So, now Peter cannot buy hamburgers for lunch. Instead he has to buy the regular school lunch. Peter is of course outrageous and think that his freedom and privacy is hampered, but his parents who pays for the lunch are happy campers.

Take minute to reflect upon how smart money could be used by governments or organisations. Just two illustrations:

Governments could only spend money on the things that has been decided in the general election.

Organisational members (employees) can only spend money on things that is in aligned with the purpose of the organization (not flying private jet-planes to visit their kids)

Smart money is essentially restrict-use money. The idea of restricted-use money is not new – it is actually quite common. For instance, governments issue “food stamps” that can be used for food purchase only in designated locations, casinos issue proprietary “chips” that can be used for gambling, and airlines issue “frequent flyer miles” that can be used for flying tickets. But, current restricted money is not legal tender or bank money. However, instead of functioning as a designated fixed-purpose token, smart money affords a fully-customizable multi-purpose digital medium of value exchange for everyday use by anyone.

We envision a multitude of cases where smart money can be of interest. In addition to numerous business and societal opportunities, it will of course create a heated debate concerning technical and organizational issues as well as social and ethical issues. Different stakeholders, such as banks, merchants, consumer agencies, politicians, health organizations, human rights and refuge organizations among others will take different positions from their perspectives. If we believe that the future payment infrastructure will be become ubiquitous in global transactions banking, then the emergence and diffusion of smart money is inevitable and deserves further investigation. Money and payments are evolving and we do expect that money will become "smart".

Besides the course material, you also find relevant readings here:

http://www.investopedia.com/terms/r/restricted-cash.asp

The specific questions to consider in your report pertain to the diagnosis and prescription of the use of smart money.

Diagnosis:

Under which circumstances can smart money by useful?

What are the issues or problems, at individual, organisational, society or global level, that smart money could solve?

Prescription:

How would you implement smart money? Based on your diagnosis come up with a implementation plan and out line the potential consequences.