Brazil: Central Bank advocates actions for orderly “tokenization” of the economy

By Larissa Garcia

A Central Bank (BC) study released yesterday shows that the transition to a digital economy, in which tokens play a predominant role, has been accelerating.

“In this context, through the digital real initiative, the Central Bank has been approaching this new environment, which presents great potentials and challenges,” says the document, which is part of the Banking Economy Report (REB), to be published in full on June 6.

The Central Bank highlighted that it is necessary to “outline the course of actions” so that this transition occurs in the “most orderly way possible” and without compromising financial stability.

“To disseminate the benefits of these new technologies, the Central Bank will have to accompany the changes underway in the economy.”

“In our structure, new systems will need to be implemented, and new processes and a new organizational culture will need to be created – adjusting, among others, the regulatory frameworks and supervision models,” stressed the monetary authority.

According to the study’s conclusion, the idea is to provide a safe environment for the generation of new businesses while promoting access to the benefits of the digitalization of the economy to a larger base of citizens and entrepreneurs.

In the text, the Central Bank also lists possible uses for the digital real, such as in smart contracts.

“The discussion about digital currencies – besides being multidisciplinary, involving areas as diverse as information technology, law, and economics – is multifaceted in each area it touches,” he said.

“This characteristic allows issues concerning the digital real to be approached from different perspectives.”

“In this text, which is not intended to exhaust the issue or present all aspects concerning the subject, the focus is to discuss how the digital real and ‘tokenized’ versions of bank currencies can meet the demand for a digital representation of liquidity, necessary for the proper operation of a ‘tokenized’ environment.”

The paper points out that DLTs (distributed ledger technology) and smart contracts can potentially enable innovative business models in several areas.

“The dialogue with the private sector and academia, especially through the LIFT Challenge, allowed a detailed analysis of potential use cases related to the digital real,” it assessed.

“As a mechanism facilitating innovation in financial markets, central bank-issued digital currency (CBDC) platforms enable the incorporation of new technologies and new business models with the potential to meet the population’s demand for natively digital means of settlement, similar to those available in the cryptoactive ecosystem,” the CB detailed.

The authority said that the list of potential applications of a digital currency issued by central banks in various countries includes extending financial inclusion eliminating paper money, to improving digital payment services.

“In general, the most considered uses for a CBDC are related to digital payment solutions. In Brazil, however, these are already served by systems that are a global reference, such as Pix, for example,” he pondered.

“Therefore, the studies for implementing the Brazilian sovereign digital currency, the digital real, needed to consider the possibilities brought by digital currency technologies for applications beyond payment services.”

“Consequently, the Central Bank sought to design a more open financial system, which favors the incorporation of new technologies and the offer of new services to a wider portion of the population,” it said.

With information from Valor

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