A blockchain developer Pedro Magalhaes has discovered that the Brazilian central bank digital currency (CBDC) has a feature that allows the central bank to freeze users’ funds. Magalhaes discovered this when reviewing the Github codes for the country’s CBDC.
The feature also allows the government to adjust wallet balances as they please. According to the founder of Web3 consulting company Iora Labs, the government has not been completely honest about its CBDC project.
The Central Bank of Brazil (BCB) had in April announced plans to launch a CBDC by 2024. At the time, the bank only emphasized beneficial aspects of the CBDC, such as financial inclusion.
“Greater inclusion, lower cost, intermediation, competition with reduced barriers to entry, efficiency in risk control, monetization of data, complete tokenization of financial assets and contracts. This is what we see in this digital economy in Brazil,” the central bank’s president Roberto Campos Neto said at a conference.
Brazil would be joining other countries such as Nigeria Bahamas, Nigeria, Eastern Caribbean and Jamaica that have already launched their CBDCs. However, the revelation by Magalhaes could be a major blow to the project as the government never disclosed any plans to freeze funds with the digital currency.
Brazil Central Bank Called Out
In an interview with Decrypt, Magalhaes said that the government is keeping the development secret and is reluctant to share it with anyone outside the banking system.
Although he knew about the feature earlier, he said he ”first thought the function would only refer to DeFi or CeFi, where it may be necessary to freeze the balances to complete a smart contract operation”, but it turns out not to be so.
“They tend to keep things closed off and usually don’t communicate with non-bankers,” he told Decrypt. “Honestly, they don’t even need to care about public opinion,” he added.
Interestingly, a local crypto reporter in Brazil, Vini Barbosa has confirmed the claims Magalhaes made. In a tweet, the reporter said everything the developer said was true, after he confirmed from the central bank.
“The ability to ‘freeze or arrest amounts’ held in [this system] is protected by current legislation in Brazil, according to the Central Bank,” Barbosa tweeted.
Magalhaes says he’s reporting the issue on social media as a way to fight the central bank’s excessive control over CBDC.
“They will try hard to adopt it, and they have the power to do it. As a blockchain developer, the only thing I’ve been asking for is: please, provide public smart contracts and let Brazilians know what the Central Bank is doing,” Magalhaes added.
Reservations on CBDC Confirmed
The idea of a CBDC has faced criticisms from the first time it was mentioned. Many crypto enthusiasts have alleged that CBDCs will be used as instruments of control since they are issued by the central banks.
This discovery finally confirms the tendency of the government to abuse the power that a CBDC gives them to control the citizens. Even though every government claims to have financial inclusion at the core of the proposal for a CBDC, Magalhaes’ discovery confirms that this is not entirely true.
Hopefully, this will deter other countries from adopting such features in their CBDCs and also force the Brazilian central bank to remove this feature or go back on the whole CBDC project.2
