Samba to the Beat of Digital Currency

The Central Bank of Brazil is set to launch a suite of digital tests for its Central Bank Digital Currency (CBDC) with a focus on privacy and security. This follows the introduction of the PIX instant payment platform in 2019, which swiftly found widespread usage in Brazil. Instant payments and CBDCs are very similar. Both would provide instantly available good and final funds.

The digital real is being deployed in various areas and functions during the trial phase. Third parties, including banks, can conduct pilot tests for the digital real once they meet certain requirements by 24 April 2023. The test environment may continue beyond 2024, if necessary. The digital real is expected to encourage banks to tokenize their assets, which will improve settlement, audit, and funding costs. This will be achieved by exchanging tokenized deposits for the digital real. Tokenized assets used as digital currencies could lead to a shift in the way we think about money and revolutionize making payments and financial transactions. CBDCs have the potential to improve the efficiency, security, and privacy of such transactions, which could be a game-changer for the financial industry.

However, the success of CBDCs depends on their ability to maintain the core principles of non-digital currencies, including the governmental guarantees of its value and widespread acceptance as a medium of exchange. Digital currencies enable central banks to issue alternative money, rather than relying solely on bills and coins.

While at least 27 countries are working on formulating regulations for digital currencies, Brazil has already passed a bill that regulates these assets. This allows the country to introduce concepts and principles to guide the provision of services in the era of digital assets and payments, while empowering Central Bank of Brazil to fine-tune the regulation.

Julian Barazi, World Bank
Yoann Foumany, SECB Swiss Euro Clearing Bank