The Brazilian Central Bank (BCB) announced today that it would begin testing the pilot project this month for the South American country’s official tokenized currency: the Digital Real.
This is one of the most ambitious undertakings of the institution, which has been seeking in recent years to accelerate financial inclusion in Brazil in an unprecedented way.
In this test phase, the BCD will evaluate the programmability benefits offered by the Distributed Ledger Technology (DLT) platform Hyperledger Besu for operations with tokenized assets. To this end, it will determine parameters for data protection and money laundering prevention.
Over the next few weeks, the model will be tested in transfer, issuance, trading, and redemption operations until the platform is considered ready for government bond transactions between different financial entities.
The test will be conducted in a simulated environment.
A security trial for an ambitious digital currency
The pilot foresees the participation of end users through tokenized deposits and the involvement of the National Treasury Secretariat and will contemplate the issuance of Federal Government Bonds and the settlement of transactions involving these bonds with Delivery versus Payment (DvP) at the end-client level.
As announced today by the Brazilian Central Bank, one of the guidelines of the Digital Real will be that tokenized assets will follow their respective regulatory regimes, not to generate asymmetry between the current and tokenized forms of these assets.
Another of the points already defined is that financial institutions will be allowed to issue tokens of their deposits, which can be converted into Digital Real.
In addition, the regulation of this new digital currency will emphasize the design of a DLT that enables the registration of assets of various kinds and the incorporation of technologies such as smart contracts and programmable money.
A new layer in the payment system infrastructure
The institution’s specialists seek to design a system where adding other services from a starting point is possible, creating a new layer in the payment system’s infrastructure.
The RD Pilot also foresees the creation of a forum for information exchange between the regulatory institution and the agents participating in the test.
The digital version of the currency is expected to reach the public by the end of 2024.
This project officially began to take shape in September 2022. The Central Bank Digital Currency of Brazil (CBDC) — an extension of the Brazilian real paper currency — already has its own prototype for its tokenized version.
This new technology also has the potential to foster another essential plan of the BCB in the future: the regional integration of the PIX payment system in Latin America.
Jorge C. Carrasco is a Contributing Reporter at Fintech Nexus. He reports on fintech, economy, banking, startups, and technology, covering the most impactful stories from a Latin American perspective.
He has contributed to several international publications, such as Foreign Policy, The Spectator Australia, Estadão, Época, Washington Examiner, and Quillette. Originally from Havana, Cuba, he is now based in Brazil.