The central bank of Brazil is on the verge of breaking new grounds in the issuance of its CBDC. The bank holds an ambition to issue a CBDC that has the characteristics of a typical distributed ledger technology and retains privacy.
According to the bank’s president, Roberto Campos Neto, as governments around the world work on CBDCs, they are faced with one major challenge, which is bridging the delicate balance between open networks and privacy, which the bank intends to solve.
“When you look at the CBDCs out there, they’re not actually full DLTs. They are hybrid, which means that you have the DLT part inside the central bank, but then you have centralized outside,” he said Friday at a panel discussion in Miami.
“DLT platforms were made by people that want an openness, so everybody can see what everybody else is doing,” he continued. “So the question is, how can you have a DLT platform so that you have the benefit of the nodes producing the registration and the contract without affecting the privacy issue? So this is the most challenging part. Nobody has solved this problem yet. I think we are very close to doing so.”
Brazil is one of the countries that have advanced the most in their CBDC development. The country intends to launch its CBDC by next year, despite criticisms from experts concerning the project, and with the extra effort to solve the issue of privacy, it could be a leader in the CBDC technology.
Facilitating International Transactions
The question of seamless international transactions is one that has troubled the world for decades, since every country has its own currency which cannot be used in another country. Cryptocurrencies serve as a solution to this as they don’t have borders, but most governments don’t regard them as means of exchange.
Therefore they seek to launch CBDCs as alternatives. According to Campos Neto, CBDCs have the potential to eventually make international transactions faster and more efficient, without the need for a common currency.
“If every country has a digital currency, and we are able to connect those currencies digitally, in a fast and secure way, you actually have achieved the goal of having a common currency without actually having to sacrifice your monetary policy,” he said. “We actually can connect centralized systems to DLT systems just as fast as DLT to DLT. So the idea that crypto is always going to be better than a system that connects CBDC is no longer true,” he added.
Making the Digital Real Better
The digital Real project is at an advanced stage and Campos Neto said it will bring about better features than what the regular CBDC offers. He said beyond payments, the digital Real will improve processes around contracts and registration used in transactions like international real estate purchases.
“Today if you want to buy real estate in the U.S., your life is very hard. You have to have an escrow account, have to have a lawyer on one side, the lawyer on the other side. There is a lack of transparency, and it’s very slow, and it costs a lot,” he said.
“So if you have a system that basically, you have a smart contract that is designed to do a payment of real estate, and it meets with encrypted code, which is the money that’s actually been designed for that transaction, and it clicks, it generates a contract and a registration. And you don’t need notaries in Brazil … It improves this process of contract and registration,” he further stated.