Many central banks around the world are studying the potential of central bank digital currencies (CBDCs), with each project taking a different route.
Brazil’s central bank is preparing to launch the digital real at the end of 2024, and is making sure lenders, rather than cryptocurrency platforms, are involved in the development of the solution. At the end of May, the central bank released the names of the 14 financial institutions selected to participate in the pilot version of the new digital currency under review by the institution.
The list includes major local private banks such as Bradesco, Itaú Unibanco, Nubank and Banco do Brasil following submissions from more than 100 institutions interested in taking part in the project. The pilot phase will include buying and selling of federal public bonds among individuals.
The central bank will not allow retail customers direct access to the CBDC, reducing the risk of deposit outflows from banks and funding risks for the financial system. Other countries have instead proposed that citizens hold their CBDC directly, thereby creating a higher risk of disintermediation for incumbent banks.
The digital real may be exchanged one-to-one for the traditional real, and its price will be the same as that of the traditional real.
A wholesale solution
The digital real is being developed as a wholesale form of central bank money designed to settle interbank transactions. With regards to retail payments, the central bank in 2020 launched Pix, an instant payment system which has been widely accepted.
“The digital real aims to do what Pix did for retail payments. The digital real wants to commoditise financial services, to provide a common infrastructure with programmability, composability and where the balance sheets for banks can be completely tokenised,” said Renato Gomes, deputy-governor, licensing and resolution at the Central Bank of Brazil, in a panel during the Crypto and Digital Assets Summit in London at the beginning of May.
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The end user will have a virtual wallet in the custody of an agent authorised by the central bank, such as a bank or a payment institution. Commercial banks’ deposit tokens would have all the rules and features currently applicable to bank deposits.
The solution will complement other initiatives such as a solution for real-time gross settlement that has already been available since 2002, an e-money system, operated by a diverse ecosystem of payment service providers since 2013, and Pix.
Finally, in a paper published last year by the Bank for International Settlements, Fabio Araujo, responsible for Brazil’s central bank digital currency work, explained that the central bank will be able to halt bank runs and impose other restrictions on citizens’ access to money. Bank runs could be averted by backstops and constraints on conversion flow to and from the CBDC.
