Fabio Araujo, an economist at the Central Bank of Brazil (CBB), who is also responsible for the country’s central bank digital currency work (CBDC), has revealed that the monetary authority will have greater control over the population’s money once its CBDC is rolled out.
It has been reported that through Real Digital, the central bank will be able to halt bank runs and impose other restrictions on citizens’ access to money. Real Digital, the digital version of Brazil’s national currency, has been debated at the central bank since 2015 and will have its first tests in 2023 through nine solutions presented by private companies during the recent Lift Challenge event that was carried out by the CBB.
However, the value of the upcoming CBDC would be pegged against the national fiat payment system STR, also known as the Reserve Transfer System. Through Real Digital, the central bank says it wants to enable so-called smart payments within a regulated environment.
The report said that smart payments include smart contracts, transactions with Internet of Things devices, and even decentralized finance (DeFi) applications. In the BIS document, Araujo said the main objective of introducing a CBDC is to provide entrepreneurs with a safe and reliable environment in which to innovate through the use of programmability technologies that make smart payments a reality.
In the BIS document, Araujo said the main objective of introducing a CBDC is to provide entrepreneurs with a safe and reliable environment in which to innovate through the use of programmability technologies that make smart payments a reality.
"Technologies available for smart payments, as seen in crypto assets, make room for new business models and are better suited to meet the population's demand."
Likewise, in the paper, Araujo highlights that the central bank must maintain a partnership with the private sector in providing liquidity to the market. According to Araujo, the central bank envisions the coexistence between the Real Digital and private money issued by institutions regulated by the CBB in the intended smart payments.
Individuals could convert their deposits into tokens capable of accessing the services provided on this new platform, under a commitment that these tokens will be converted into Real Digital. In other words, banks will be able to issue their own tokens aimed at smart contract applications having their balance in Real Digital as a guarantor of the operations.
"Commercial bank deposit tokens would inherit all the regulations and characteristics of their parent assets, such as fractional reserve requirements. Likewise, [payment service provider] deposit tokens would inherit their characteristics, such as total reserve requirements."
Thus, the central bank points out that the flow of exchange of these tokens to Real Digital would have a limit and would even need to be scheduled in advance. In other words, the central bank will have the power to control the flow of money within the system.