Posted 10 months ago | by Ben Armstrong
Brazil’s Central Bank is Taking an Interest in Central Bank Digital Currency
In a recent study published by Brazil’s Central Bank, a team was created to discuss the intricacies of introducing a central bank digital currency (CBDC). The group consists of 12 members with the goal of digitising the paper bound currency.
The coordinator of the intergovernmental group and also a member of the Central Bank IT department, Aristides Andrade Cavalcante Neto, recognizes the lack of digitalisation of paper money in regards to the ever-evolving technology of electronic payment and mobile devices.
“However, our money remains materialized in paper and metal circles, and there is still no digital representation of money accessible to the citizens. So, a digital currency issued by a central bank would allow Brazilians to interact with their money in a completely electronic way”
The paper indicates that the Central Bank has already had its interest in CBDC technology in previous years, but due to China’s speedy attempt at its CBDC that is now in phase 3 of its trial, the Central Bank is now rushing to catch up with, “a greater focus in a more practical approach”.
What Would a CBDC Bring to Brazil?
The study highlighted the potential benefit that would come with implementing the CBDC. One of its main benefits is the reduction in the cost of issuing and maintaining physical money as it's often very expensive. The whole process seems to cost around 1 to 2% of GDP the paper cited.
According to the bank,
“The issuance, custody, distribution, handling by trade, collection, disposal, and other indirect costs are approximately R$90 billion per year, in line with other countries, considering that it usually varies between 1 % and 2% of GDP”
Furthermore, a CBDC could take part in safeguarding Brazil’s financial citizenship program. The motivation behind this study was pushed by China’s intentions to implement its own CBDC, but that is on hold.
China Backs Off the Digital Yuan
China’s Central Bank official shared that due to the tattered condition the economy was left with after Covid-19, China is rushing into economic recovery and is maintaining a “normal” monetary policy according to Reuters.
With the economy in no such state for CBDC implementation, the project has been delayed, but with the intention to use it during the Winter Olympic in 2022. With the extended timeline, Brazil and other countries that are planning or already testing its CBDC to catch up.
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