Liquidity is the focus of the digital real, say banks. Photo: Joel Santana, Pixabay.

The role of the digital real is to ensure the interoperability of the traditional financial sector with decentralized finance platforms (DeFi) and “the Central Bank (BC) has a unique opportunity not to ignore this DeFi movement”. This is the view of the Institutional Relations director at Nubank, Bruno Magrani, who is also a member of Zetta, association of fintechs and payment companies.

Magrani was one of the participants in the fifth webinar of the Central Bank on the digital real, which took place this Tuesday (19th). With this statement, Nubank, the largest fintech in Latin America and one of the largest in the world, indicated that it sees value in DeFi and that it is aligned with BC. This is because the BC has already indicated that it intends to somehow insert decentralized finance into the design of the digital real.

Nubank, in blockchain, offers international transfers. This because entered into partnership with Online Remittance, which uses the RippleNet blockchain for this service.

Smart contracts (smart contracts) are the main tools for innovative business models to appear and with “gigantic” transformation potential, added the director of Nubank. Magrani compared the innovations that blockchain and cryptoactives are creating with the early stages of the commercial internet.

And according to Magrani, “the internet has shown that when working with interoperable infrastructures that allow for decentralized innovation, this is the recipe for continuing to see innovation in the future.”

Fábio Araújo, coordinator of the digital real at BC, indicated on the BlockDrops podcast, by Mauricio Magaldi, that the regulator defines the design of the digital real. And that the market will create uses for the currency. And these, according to experts, are numerous, many still unknown.

Banks study impact of digital real on loans

The impact of the digital real on the availability of money for loans in the economy was also one of the main points discussed in the webinar.

The digital real will only be for transactions and will not pay as if it were an investment. Who will issue it is the BC and custody will be the financial institutions, which will also transfer the digital currency to users. One of the points about the digital real is whether citizens will take money from the cash deposit and convert it into digital real.

Today, part of the money that is in the current accounts must go to the BC, which is called compulsory collection. This is one of the regulator’s tools to ensure financial stability. By taking money out of circulation, the BC avoids, for example, excessive consumption and inflation.

Banks turn another part of the cash on demand deposits into credit for third parties, such as real estate and rural. And this without paying remuneration to the account holder where the money came from.

According to Leandro Vilain, Innovation Director at the Brazilian Federation of Banks (Febraban), the digital real can generate a migration from the demand deposit to the digital currency “and we are studying this”. This would take money from the credit market that now goes to productive sectors, he said.

Digital real that the Central Bank study may have implications, says Febraban

“We have to understand the implications and how it is mandatory (compulsory collection) without impacting the sectors financed by these deposits.” This scenario could be more critical in crisis situations, say the banks.

For Márcio Garcia, professor of economics at the Pontifical Catholic University of Rio de Janeiro (PUC-Rio), when there is a liquidity crisis, out of fear that a bank will go into crisis and fail, money usually goes from small to large banks.

“Theoretically, if there was a migration from the demand deposit to the CBDC (acronym in English for central bank digital currency) there would be a liquidity crisis in the large bank, not in the small one.” And the BC would have more work to fix the situation.

The next webinar on the digital real, sixth and penultimate of the seven scheduled, will be on November 11th. The theme should be international integration.