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Brazil launches its CBDC pilot test for the digital real

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(Kitco News) - The Central Bank of Brazil has announced the start of a pilot program for its central bank digital currency – the digital real – with the goal of replicating the success of Pix, the country’s instant payment system that is the most used means of payment by Brazilians.

According to a report from Reuters, the testing phase of the digital currency will include the buying and selling of federal public bonds among individuals, and the central bank plans on releasing the CBDC for public use at the end of 2024, once it has been fully evaluated.

During the pilot phase, only a select number of businesses will be allowed to take part, and the hours that the service will be in operation will be limited.

Fabio Araujo, coordinator of the initiative at the bank, said the digital real is being built to operate on distributed ledger technology and support retail transactions. Payments will be backed by deposits in a customer’s bank account so as to not disintermediate private banks, which will continue to operate within the CBDC matrix.

“This environment reduces costs and brings the possibility of financial inclusion for people,” Araujo said. “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 digital real also holds the promise of helping to reduce the cost of credit, improve access to services, and help provide relief to the unbanked population.

"This could reduce the cost of credit, the cost of improving the return on investments,” Araujo noted. “There is a great potential for new service providers, fintechs, democratizing access to the market and offering new services.”

The central bank representative also stressed the fact that the digital real is not intended to replace Pix as the preferred digital payment method or limit the source of funds that banks have access to for credit generation. It is intended to help fill the gap for those who cannot access such services.

"Banks are very interested in this new tokenized world, in every conversation we have they have shown a lot of interest," said Araujo. The move is part of the country’s efforts to modernize its financial system and reduce the cost and time associated with traditional financial transactions.

Another goal of the pilot project is to explore the various capabilities of a digital real, including Delivery versus Payment (DvP), which is “aimed at the settlement of transactions with digital assets, both native to the digital environment or tokenized,” and Payment versus Payment (PvP), which focuses on the exchange between currencies.

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The list of countries exploring CBDCs and launching pilot projects is seemingly increasing by the day as the global financial system gears up to integrate distributed ledger technology into its infrastructure.

Brazil joins a growing list of jurisdictions that have advanced to the pilot testing phase of their CBDC. Japan is set to launch its digital yen pilot program beginning in April, which also happens to be the start date for Russia’s CBDC pilot program. Russia is also currently exploring the use of a digital rouble to conduct mutual settlements with China.

Private companies are also getting in on the CBDC action, including Ripple Labs, which is currently working with more than 20 central banks regarding the development of a CBDC, including already announced pilot projects with Bhutan and Palau.

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.