Brazil shows significant progress in its CBDC: the real digital, which is developed in partnership with the BRICS. An expert explains that Banxico will not use Blockchain for the CBDC and that it is actually an “extra layer” for the CoDi or SPEI digital collection systems. The source code of the CBDC in Brazil has shown that it can control, pause or suspend transfers from its users.
Around 130 countries in the world, representing 98% of the global economy, are working on the implementation of a digital currency issued by a central bank (CBDC) and 64 nations are at an advanced stage, that is, in some facet of development, pilot or launch, according to the Atlantic Council. In Latin America, Mexico and Brazil develop their digital and real digital weight.
Brazil works in alliance with the BRICS (Russia, China, Brazil, and South Africa) for the development of the CBDC, since they are interested in using them for cross-border agreements. Meanwhile, Mexico has indicated that it seeks to be a pioneer in the region by encouraging the use of digital currency for the digitization of payments. Both countries plan to launch their CBDC at some point in 2024.
Mexico and Brazil Lead the Development of CBDCs in Latin America
However, CBDCs do not have unanimous support in the market, with only 42% of industrialists, investors, and finance chiefs supporting the launch of a digital currency. Recent data from Statista shows that Canada, the United States, Mexico, and Brazil have “very concrete” plans for a legal framework related to the launch of a CBDC. Like the CFA Institute, Statista agrees that reluctance towards eventual government surveillance, controllable spending, or “controllable anonymity” persists, which upsets citizens and investors.
Mexico
Mexico was one of the pioneers in the region in announcing the launch of a CBDC in 2020, when regulators, Treasury officials, and deputy governors of the Bank of Mexico (Banxico) announced that they were working on a CBDC.
The General Directorate of Payment Systems and Market Infrastructures of Banxico is the area that is developing the CBDC of the central bank, which allocated 10.22 million pesos in 2022 for the development of the digital currency. However, doubts remain as to whether the CBDC will be based on Blockchain, pending confirmation from regulators.
Carlos Valderrama, founder of the legal tech firm Legal Paradox, ruled out that Banxico is integrating Blockchain technology into the new digital currency. The central bank would actually be looking to “add a layer” to its other digital payment tools. Some are SPEI (Interbank Electronic Payment System), CoDi, and DIMo, but not a CBDC with Blockchain technology.
For the specialist (who trained regulators for the Mexican Fintech Law), Banxico’s current monetary law does not stipulate digital currencies. However, the Fintech Law, promulgated in 2018, provided for innovative models via sandbox that would allow financial solutions with other technologies such as Blockchain. However, there is a “lack of political will” to develop such schemes.
Brazil
Brazil appears to be leading the way in CBDC development in Latin America. In March, the Central Bank of Brazil launched the pilot of its CBDC, the digital real in a simulated environment on the Hyperledger Besu platform. At the same time, it is based on EVM (Ethereum Virtual Machine). Among the tests, the following stood out: digital real, tokenized real, and federal public security.
Weeks later, the central bank revealed 14 participants who would test the Brazilian CBDC. They highlighted: Nubank, Microsoft, Santander, Itaú, Visa, Banco BTG, Bradesco, and BBChain, among others. However, the Central Bank of Brazil published the source code of its CBDC on Github, which caused discontent among Brazilians.
The source code of the Brazilian CBDC showed that the digital real pilot included methods to freeze or empty wallets. Likewise, controllable money functions to move digital money, minting or burning funds. The Github also showed a feature called “access control”, increasing and decreasing frozen funds and pausing withdrawals and local or international transfers.
By Audy Castaneda
