The Brazilian digital currency announced by the Central Bank is not a crypto-asset but an extension of the real, known as CBDC (an acronym for Central Bank Digital Currencies). Its distribution will be intermediated by custodians of the National Financial System (SFN) and the Brazilian Payment System (SPB).
According to the coordinator of the work on the digital currency of the Central Bank, Fábio Araújo, it will be different from cryptocurrencies. “Cryptoassets, such as bitcoin, do not hold the characteristics of a currency, but of an asset”, he said at a press conference. He also pointed out that the BC will guarantee the currency, and the financial institution will only hold the money for those who choose the new modality.
The feature can be used in any digital transaction, such as payments and transfers. However, the Central Bank still has no date for the novelty to come into effect.
But so far, what has been already confirmed about the new currency? Check out the following eight pieces of information from the Central Bank about the digital real.
1. The Brazilian digital currency will not be a cryptocurrency
The issuance of cryptocurrencies is decentralized, i.e., no authority controls it. “In the case of the Brazilian digital currency, by its very nature, the issuance will be centralized”, Safiri Felix, director of products and partnerships at Transfero Swiss, told Infomoney.
2. The digital real is not a stablecoin
Stablecoins are digital currencies backed by a national currency – such as the BRZ, pegged to the Brazilian real. However, since the Central Bank will issue the Brazilian digital currency, it may become a real currency in Brazil, unlike a stablecoin.
3. The Central Bank will take the risk of the digital currency
Currently, the vast majority of transactions do not involve cash. Payments made via bank transfer, PIX or other digital means have the built-in risk on financial institutions. In the case of digital currency, this risk will be assumed by the BC.
“A bank deposit is a bank liability. The client makes the deposit, and the institution has responsibility for securing that money. In the case of the digital real, it is a liability of the BC, in the custody of the institution”, explained the representative of BC, indicating that banks will not be able to use the currency for loans.
4. Value of digital currency not yet defined
It is not yet known if a digital currency will have the same value as one real. According to Fabio, it would be possible to live with some price disbonding, as long as this does not bring excessive volatility to the currency.
But, according to him, it would also be possible to establish a system that always guarantees that a digital real is worth the same as the correspondent fiat currency – provided that this parity is managed. There is no certainty yet about exchange rate parity either.
5. It will be possible to withdraw digital currencies on banknotes in Real
The coordinator of the BC states that this transaction will be possible through the interoperability of the two versions. However, digital currencies cannot be stored in a vault, for example. They will need to be kept in private, password-protected digital wallets.
6. Guidelines guarantee security through technological resources
According to the guidelines announced by the Central Bank, the Brazilian digital currency will require technological developments, such as smart contracts, the internet of things (IoT), and programmable money.
“Legal certainty in its operations” and “adherence to all the principles and rules of privacy and security determined, in particular, by Complementary Law No. 105 of 2001 (bank secrecy) and the General Law on the Protection of Personal Data” should also be guaranteed.
According to the Central Bank, the technology for creating the currency must “follow international recommendations and legal standards on the prevention of money laundering, the financing of terrorism and the financing of the proliferation of weapons of mass destruction, including in compliance with court orders to trace illicit operations”.
7. There will be no automatic financial correction
Digital resources will not have an automatic correction; for them to be corrected, the customer will have to make a financial investment.
8. Digital currency may offer cheaper transactions
Because it is digital, the Central Bank expects that transactions such as transferring funds abroad or paying for services and products contracted in other countries will be cheaper. However, this requires the approval of new foreign exchange law, which is currently under analysis by the Senate.