Brazil’s Central Bank has announced plans to issue its own digital currency, the digital real, by the end of 2024. To achieve this, the bank is set to run a pilot project using an Ethereum-compatible, permissioned blockchain, which will allow for the issuance of a tokenized version of the currency. Hyperledger Besu, an open-source, blockchain platform, has been selected and is expected to host the tests without imposing any licensing costs. This move will allow for the development of more economic applications and services using the tokenized digital real, thus expanding competition in the marketplace. The use of Hyperledger Besu as a base for the digital real also has a number of compliance and privacy advantages as it ensures the transactional and bank functions will be managed by authorized institutions.
Brazil’s move towards a digital economy is significant and will be transformative for the nation. It is likely to have a significant impact on a number of sectors, including banking, accounting, investment, and financial management. The digital real will also likely challenge the current dominance of banks in Brazil’s economy, as the traditional financial institutions will no longer be the only players in the market. Instead, the open-source, decentralized nature of blockchain will make it easier for third parties to participate in financial transactions, offering greater competition and potentially lowering transaction costs for end-users.
Hyperledger Besu, in particular, offers several advantages for the digital real. The fact that it is an Ethereum-compatible platform brings the promise of a wide array of developers potentially using the currency in diverse applications and services. Moreover, the fact that Hyperledger Besu is an open-source platform provides Brazil’s Central Bank with the capacity to use it without having to incur any licensing costs. Additionally, Hyperledger Besu’s permissioned blockchain ensures only authorized institutions are allowed to manage the real currency. Consequently, it is expected to be used to complement interbank transactions while the tokenized real serves as a stablecoin issued by banks. On this, Fabio Araujo, the Coordinator of the digital real project at the Central Bank of Brazil, stated that the regulatory framework would remain unchanged to avoid asymmetries in relation to the current system.
The move towards a digital economy also brings its own set of challenges, including the need to educate the populace on new technological advances, such as blockchain technology. There is likely to be a consequential learning curve for many Brazilian citizens, as well as for businesses and organizations that will need to upskill in order to make full use of the digital economy. The Central Bank of Brazil, however, is optimistic about the prospects of the digital real, asserting the need to ensure that the currency is widely accepted, secure and accessible to all Brazilians.
An important consideration in the Central Bank’s choice of the Ethereum-compatible open-source platform was the potential competition from China’s digital yuan, which delivers the digital currency directly to users’ digital wallets. The Chinese digital yuan has been in circulation since June 2020 and has been significantly successful in the Chinese market. The Central Bank of Brazil appears to have taken notice of this trend and is focused on ensuring the digital real will also become accessible to all Brazilians, while also retaining the necessary controls to ensure compliance with regulatory requirements.
Given the potential of the digital real, it is important that the Central Bank of Brazil design a system that is both easily accessible and secure for all its users. It is necessary to ensure its use is compliant with established regulations. In conclusion, the Central Bank of Brazil’s move towards a digital economy using an open-source, permissioned blockchain platform represents a bold step for the country, and its success will be closely watched by other nations.
