To improve access to financial services throughout the South American nation of Brazil, the country’s central bank has formally introduced a prototype form of central bank digital currency (CBDC).
Also, the bank has high expectations that the Brazilian CBDC would achieve the same level of success as Pix, the immediate payment system used in Brazil.
A Statement from the Coordinator of Brazil’s Experimental CBDC Project
The supervisor of the CBDC program at the central bank, Fabio Araujo, anticipates that the CBDC will be available to the general public at the end of 2024.
But, this anticipated adoption won’t occur until after a trial phase that includes individual purchases and sales of public bonds issued by the federal government.
In addition, it is quite unlikely that the distribution of the digital money will take place until after the project has finished the subsequent feedback review.
In Araujo’s opinion, a realistic decision was made by the Brazilian central bank to initiate a pilot project to test out CBDC as an experimental financial instrument.
The plan’s objective to “enable the supply of retail financial services” was achieved by establishing a payment option based on distributed ledger technology.
In addition, this section calls for resolving disputes through tokenized deposits made in the institutions that make up Brazil’s financial and payment system.
Araujo elaborated on the CBDC as a tool that enhanced the entire financial tapestry of Brazil and explained (1):
“The cost of lending and the cost of enhancing the investment return could both be reduced due to this. There is a significant opportunity for emerging service providers, such as FinTech companies, to democratize market access and deliver innovative new services.
In every conversation we have with them, financial institutions demonstrate significant enthusiasm for the newly tokenized economy.
Araujo also made the following statement regarding the CBDC as a means of fostering more financial equality inside the Brazilian financial system:
“You have activities that are very costly to carry out, such as repo procedures, which are currently only for banks, but might be done by anybody with a system based on digital currency,” the author writes.
Nonetheless, Araujo emphasized that the purpose of the Brazilian CBDC is not to facilitate digital payments, which Pix currently accomplishes, and that this is a point that he made. The Brazilian monetary authority will roll out the immediate payment platform at the tail end of 2021.
That will make it possible to execute transfers more quickly and on a larger scale. Pix, which has gained significant traction in that country, was introduced in the summer of 2019 and went into full operation on November 16, 2020.
CBDC Is Going to Improve the Financial System, Not Take Away From It
Reports have indicated that the prototype CBDC would not harm bank deposits in Brazil. Because of this new development, there will be no interruption to the previously mentioned source of credit generation.
At the beginning of this month, Brazil announced its intention to launch real-world’ digital tests of its long-standing CBDC proposal.
At the time, the central bank stated that the launch was conducted to make the CBDC a more private and safe organization.
Brazil is among several countries worldwide that are now in the phase of introducing and adopting CBDC which varies from country to country. There has been a recent uptick in central banks investigating, introducing, or adopting a digital currency as a potential option.
