Digital real: BC wants to use tools like smart contracts for flexibility.
The digital real will favor Brazil’s participation in the regional and global economic scenario, increasing the efficiency of cross-border transactions, “which in our case is not so great. We have a lot to gain from international payments.”, That’s what he said today (1) Fabio Araujo, coordinator of the digital real project at the Central Bank (BC), at a public hearing in the Senate.
There is still no decision on whether to use the blockchain, he said. BC wants to “exhaust the infrastructure that we have centralized at the moment. On the other hand, we’re not sure that a centralized structure like in Pix will beá capable of providing all the functionalities that we expect the digital real to have”.
According to Araújo, “the testing phase will be fundamental for this decision. This technology has dominated discussions internationally and most likely, at some point in the future, we will have to use something similar decentralized, given the efficiency gains that seem to come from this technology. But first it is necessary to measure the efficiency gains”.
In 2022 there will be tests and probably an innovation laboratory. Due to the complexity of the theme, “a horizon of two to three years seems the most adequate” to have mature conditions for the issuance of the digital real, he added. According to him, to implement the CBDC, three fronts need to mature. First, from the bank’s agenda, that is, open banking and Pix.
“Digital real needs mature token market”
It is also necessary “the maturity of the markets and markets. Despite the increasing tokenization of assets and some fintechs presenting projects in Lift and sandbox (from BC) that would benefit from a CBDC, we still do not see products for these new technologies in the market. We’re just starting to consider these new technologies.” And the third is international maturity. This is an area where there can be great benefits from CBDC in the Brazilian case”, he stated.
Araujo participated this morning in a public hearing at the Senate Science and Technology Committee (CCT) on the digital real. The meeting was called by the president of the CCT, senator Rodrigo Cunha (PSDB-AL). The senator stated that the Senate has an inspection mission and wants to monitor the studies of the Brazilian central bank’s digital currency (CBDC).
The studies on the digital real by the Central Bank (BC) have two lines of motivation, one domestic and the other international, said Araujo. The global relates to Facebook’s decision to have a global currency. In addition to the pandemic, which accelerated the digitization of payments and indicated the possibility of using CBDCs. The domestic has been related to the digitalization of means of payments since the beginning of the 2000s, which is now in the Pix phase.
Although not mentioned at the hearing, in relation to the global motivations of BCs around the world to start or accelerate studies on the subject, it is that China announced that it would move towards the digital yuan. And that was right after Facebook said it would have its stable currency (global stablecoin). Thus, governments found themselves pressured to study the issue.
BC has its eye on the BRL 40 billion in Brazilian cryptocurrencies
And in the domestic field, the BC is eyeing the advance of cryptocurrencies in the digital pockets of Brazilians. That’s because there are around R$ 40 billion in that pocket, said the bank’s president, Roberto Campos Neto, at an event organized by the Center for Advanced Studies on the Regulation of the National Financial System (Neasf) of the Getulio Vargas Foundation (FGV).
Araujo classifies CBDC projects into three groups. One of them refers to wholesale currencies, for transactions between banks and countries, which include, for example, the European Union, Switzerland and Singapore. There is a front that works on instant payments, something like Pix, and that includes China, Sweden and the Bahamas. Brazil is in a third, which is to promote technological and business models. In this group are also Canada and Brazil.
Therefore, in BC’s view, the main objectives of a digital real “would be to accompany the technological evolution of the Brazilian economy in order to contribute with innovations and new business models.” But, at the same time, having one more instrument to maintain monetary and financial stability.
The use of the real in the digital version is already very high, for example, in formats such as online transactions, digital accounts and to receive government benefits. The proportion is around 96.5% of the money market, according to Daniel Gersten Reiss, General Coordinator of Financial Systems at the Ministry of Economy.
For Reiss, with regard to legal and regulatory issues, one of the questions for reflection is whether the BC should know the value of the electronic money each person holds. Should payments within the same bank be registered individually with the BC and operator? Today they are registered. But, existing payments within the same bank do not have this record. “The Chinese model applies one more registration,” he said. And in technology, what is the reach of users and how not to exclude users and operationalize the currency based on smart contracts?