Will Brazil Move Towards a Central Bank Digital Currency?

In early March, the central bank of Brazil announced  the initial stages of a new digital currency plan. The central bank’s leadership has high hopes for this CBDC project and is optimistic that it will enjoy as much success as its instant payments system Pix.

Fabio Araujo, the individual spearheading the launch of the digital currency at the central bank, revealed that a complete rollout of the “digital real” should commence in 2024, after the conclusion of the trial phase.

According to Cindy Harper of Reclaim the Net,  the CBDC will be carried out through distributed ledger technology (DLT), to support the settlement of financial services by way of tokenized deposits.

“This environment reduces costs and brings the possibility of financial inclusion for people. You have services that are very expensive to carry out, such as repo operations, which today are only for banks, but which could be performed by anyone with a technology based on digital currencies,” Araujo stated.

“This could reduce the cost of credit, the cost of improving the return on investments. There is a great potential for new service providers, fintechs, democratizing access to the market and offering new services.”

He stressed that the “digital real” is not supposed to leverage digital payments. The central bank is currently doing that via Pix, the instant payment system that was rolled out in 2021.

Araujo noted that bank deposits would still be allowed to exist, although they will be operating under a modern framework. In other words,  financial institutions would not have their deposits vanish as a source of generating credit.

“Banks are very interested in this new tokenized world, in every conversation we have they have shown a lot of interest,” Araujo highlighted.

Under the rule of Luiz Inacio “Lula” da Silva, Brazil is clearly taking a technocratic turn that will see the Brazilian state control more facets of Brazilian’s daily lives. If Brazil is truly to reach its full economic potential, it must ditch the move towards statism and embrace more market-based and limited government reforms.

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