The Central Bank of Brazil has commenced testing of its central bank digital currency (CBDC) project, expected to foster an increased inclusion of individuals in the financial sector.
According to Reuters on Monday (March 6, 2023), the coordinator of the CBDC project at the Central Bank of Brazil, Fabio Araujo, indicated that broad usage of the digital real is projected to start in 2024 after the completion of the trial. Individuals purchasing and selling government bonds, as well as subsequent evaluation, will be part of the testing phase.
According to the article, the Brazilian CBDC would be a blockchain-based payment system that will facilitate retail transactions. This payment will be backed up by the customer’s bank deposits. Banks will not be disintermediated in this manner since they will exist within the CBDC grid. As a result, they will not lose their source of credit.
A statement from Araujo said:
“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.”
The central bank executive added:
“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.”
CBDC Intended for Different Purposes
The Central Bank of Brazil also added that the proposed CBDC initiative is not intended to interface with digital payment rails, as Brazil’s existing payment system Pix already fulfills the purpose.
Apart from Brazil, other countries are also conducting CBDC pilots. Japan’s apex bank is looking to begin experimenting with its CBDC project in April 2023. India’s retail digital rupee pilot, which began in Dec. 2022, has onboarded 50,000 users and 5,000 merchants. However, in the United States, Representative Tom Emmer recently introduced a bill to stop the issuance of a digital dollar.