Central banks around the world are discussing the creation of digital currencies and that includes the Central Bank of Brazil, which is working for the Brazilian currency to gain the digital option soon.
It is a CBDC (Central Bank Digital Currency), alternative currency, but with the same value as traditional physical money.
“The digital real is an expression of the Brazilian sovereign currency, which is being developed to support a safe environment where entrepreneurs can innovate and where consumers can have access to the technological advantages brought by these new tools, without having to expose themselves to this to an unregulated financial environment,” stated the BC, to the CNN Brasil Business.
On November 30, the Central Bank announced the creation of LIFT (Laboratory of Financial and Technological Innovations) for banks, cooperatives and financial institutions to participate in the project’s preparation, offering solutions to make the digital real possible.
The Laboratory will be carried out by Fenasbac (National Federation of Central Bank Server Associations), in partnership with the Central Bank of Brazil. The intention, says the financial institution, is to bring together market participants interested in developing a “minimally viable” product with the characteristics that the BC seeks for the technology.
Applications for project proposals start on January 10, 2022 and end on February 11th. Right after registration closes, the best-evaluated projects will be selected. The announcement of the finalists is scheduled for March 4th.
From then onwards, BC will begin the execution of the planning of the proposals chosen on March 28, with completion forecast for July 29th.
After this period, a schedule of pilots for tests with the population will be defined. The result of the pilot phase will help to define the deadlines for the launch of the digital real.
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With the implementation of the digital real, Brazilians will have a virtual wallet in the custody of an agent authorized by the BC — such as a bank or a payment institution.
The digital real can be converted to any other form of payment available today — such as a conventional bank deposit or a physical real.
Through the virtual wallet, the user will be able to carry out transactions in digital “smart contracts”. In practice, this means that a citizen interested in buying a car from a third party will be able to draw up a digital contract and allocate the values of the digital real.
However, the money remains stopped, and the transfer will only be completed when the vehicle documents are in the possession of the new owner and the situation is regularized in Detran, for example.
This is the first specificity that the Central Bank stipulated for participating institutions regarding the categories of currency use cases.
“For this to happen, the user will have to have the car token. Society will mobilize for tokenization, which is a record of ownership, but digital”, explained Rodrigoh Henriques, Fenasbac’s financial innovation leader.
In addition to this category, which the BC calls “delivery against payment”, the monetary entity hopes to offer the population the possibility of “payment against payment”.
In practice, this was the name used for foreign exchange transactions. Through the digital real, the user will be able to pay and receive in other currencies and convert them.
The Central Bank also states that virtual currency must have internet of things, or IoT, aspects. With this, citizens will no longer have to worry about paying some basic bills or shopping, as their intelligent machines will do it for them, but through the digital real.
“A refrigerator will automatically be able to make purchases in the market based on what is inside it. If she realizes that the milk has run out, she will be able to make the purchase for the user, if it is programmed for that”, said Rodrigoh.
“Another example is that of a smart car that will be able to pay tolls or parking without the driver worrying about these things,” he added.
The economist explained that these intelligent machines must have a virtual wallet in their own custody to carry out purchases and transfers. In it, the user deposits digital real values so that the registered machine can make payments.
Finally, the BC determines the validation of decentralized finances. According to Rodrigoh, this category will allow transactions to only exist in the digital world, through virtual companies, without these transactions going through traditional banks, for example. “It only works if the currency is digital and the process is very fast”, he added.
BC told the CNN Brasil Business that virtual currency focuses on online payments, including day-to-day payments, and therefore its impact on the demand for paper money should not be relevant at first.
One of the possibilities that is still being studied is the transfer of real digital offline, that is, when one of the users is not connected to the internet. This category is not a requirement of BC in the Lift Challenge, but the entity said it will give preference to institutions that offer this usability.
Regarding security, the Central Bank stated that “an established guideline for the digital real is that it maintain the high levels of security and privacy currently available in operations carried out in the banking and payments system”.
Reference: CNN Brasil
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