BC: Tests of use of digital real include payments without intermediaries


Digital version of the real arrives in 2024, says BC. Photo: Eduardo Soares, Unsplash.

The use of technologies such as distributed ledgers (DLTs) and blockchain in the digital real could generate new business and tends to make the use of this version of the currency “explode”. So much so that the focus of the Central Bank (BC) for the real digital use case testing program focused on choosing projects that include operations such as immediate delivery and payment (Delivery versus Payment, DvP) and payment exchange. immediate (Payment versus Payment, PvP).

More specifically, the test program, LiftChallenge, is focused on decentralized finance. This is because it is there, in this universe of crypto assets today, that the BC sees the possibility of creating solutions that go beyond what already exists in the current financial system.

“Programmability tools were the focus that BC gave to the initiative”, said Fabio Araújo, coordinator of the real digital project at BC. According to him, programmability, which means operating with decentralized finance (DeFi) on blockchain networks, was what the regulator saw most interesting in the international scenario that could be brought to the local market.

Araújo participated in the first of the two days of LiftDay 2022, which, like the Challenge, is an initiative of BC and the National Federation of BC Servers (Fenasbac). The 10 projects that participated in the last Lift Lab are now presenting their results on LiftDay.

According to Araújo, around 80 BCs have active projects in central bank digital currencies (CBDCs) and the equivalent of 90% of world GDP works on the subject. “Each one seeks a solution to local problems”.

Of the nine projects that are in the LiftChallenge, three are DvPs, one is PvP, one is DeFi liquidity pool, and one is DeFi with a focus on funds for small and medium-sized companies. There is also a programmable money for rural activity (see table below). One is for offline operations and the other also involves internet of things for the delivery of products sold on e-commerce platforms.

When talking about the use of the digital real in operations such as dvp and pvp, he recalled that a transaction of R$ 50, for example, may be unfeasible due to current technologies, which require intermediaries to reduce the risk of the operation. But, smart contracts make this possible by greater ease and reduced cost. So this is where new businesses like asset tokenization and low-value transactions can emerge.

Testing starts in the next few days. At the end of four months, there will be no products to go to market, because there will still be no digital real. It is therefore a different format of testing compared to other countries that first want to define the technology they are going to use. And only then will they test use cases. First, the BC wants to know which applications are viable, the application difficulties, eventual changes such as regulatory ones. But BC already considers, as LiftChallenge shows, the use of DLT/blockchain.

“It’s almost reverse engineering”, looking at the use cases first and then the platform”, said Rodrigoh Henriques, innovation leader at Fenasbac. The digital real pilot phase should begin at the end of the year. And if all goes well, this version of the coin will hit the market in mid-2024.

There will be one more call from companies for the pilot phase

For the pilot phase, the BC will open a new call for companies to submit projects. However, companies that participated in the current phase of testing, are not guaranteed the next phases. Other projects that have matured on their own may enter,” said Araújo. At the end of the program, the BC will release reports on the projects.

BC President Roberto Campos Neto said that for the Brazilian financial system to advance, it is necessary to establish a collaborative environment with the private sector. This ranges from regulated institutions to startups and technology providers “to remove information asymmetry using technology”.

In Europe, the president of the European Central Bank (ECB), Christine Lagarde, the bloc needs a digital euro because of the advances in cryptocurrencies. And because if other economies like the United States adopt a CBDC, they will have advantages in the digital world. Like Brazil, the EU also hopes to have its digital version of the currency in 2024.



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