Brazil central bank details CBDC pilot guidelines

The Banco Central Do Brasil (BCB) revised the Real Digital guidelines and, as of March, will start testing a platform for operations with Real Digital (Pilot RD). The discussion has evolved, in particular, around the need to reconcile the wide variety of use cases of the central bank’s future digital currency with the institutional arrangements in force in the country and the technologies available for its implementation.

In this context, the BCB consolidated the view that, in order to achieve the main objectives of implementing Real Digital, it is important to preserve financial intermediation and, consequently, the leverage and credit generation capacity of the banking system.

“The guidelines were updated to direct the evolution of the Real Digital initiative and guide discussions with domestic and foreign regulators, international organizations, industry and academia”, explains Fabio Araujo, consultant at the Department of Banking Operations and Payment Systems (Deban) at BCB, in a statement.

The updated Real Digital guidelines are:

  • Emphasis on the development of innovative models with the incorporation of technologies, such as smart contracts and programmable money, compatible with the settlement of operations through the “internet of things” (IoT);
  • Focus on the development of online applications, keeping in mind the possibility of offline payments;
  • Issuance of the Real Digital by the BCB, as a means of payment, in order to support the offer of retail financial services settled through deposit tokens in participants of the National Financial System (SFN) and the Brazilian Payments System (SPB);
  • Application of the current regulatory framework to operations carried out on the Real Digital platform, avoiding regulatory asymmetries;
  • Ensuring legal certainty in transactions carried out on the Real Digital platform;
  • Compliance with all privacy and security principles and rules provided for in Brazilian legislation;
  • Technological design that allows full compliance with international recommendations and legal rules on the prevention of money laundering, the financing of terrorism and the financing of the proliferation of weapons of mass destruction, including compliance with court orders for tracking illicit operations;
  • Adoption of a technological solution based on DLT that allows:
    • registration of assets of different natures
    • decentralization in the provision of products and services
    • interoperability with legacy domestic systems and with other systems for registering and transferring information and trading regulated digital assets
    • integration with systems in other jurisdictions, with a view to making cross-border payments
  • Adoption of resiliency and cybersecurity standards equivalent to those applicable to critical infrastructures in the financial market.

In the update, the first guideline was preserved as it is the most important of all, as it explains the BCB’s objective of promoting the democratization of access to new technologies through Real Digital, which will support retail transactions.

“Its update establishes the distinction between the use of smart contracts and IoT technologies. The current second guideline listed expands the scope of ‘online operations’ to ‘online applications’, more consistent with the expansion of possibilities brought by the framework of decentralized finance to the Real Digital initiative. In addition, the possibility of offline use is restricted to payments”, said Araujo, in a statement.

RD pilot

The central bank will start testing the Pilot RD in March 2023. When designing the infrastructure for the tests, the BCB took into account the growing trend towards “tokenization” of assets and the issuance of digital assets on unregulated decentralized registration platforms . By conducting the RD Pilot, the BC will evaluate the programmability gains allowed by a DLT platform through operations with “tokenized” assets.

Among the assets selected for the RD Pilot are “tokenized deposits”, which are digital representations of deposits held by financial institutions (FIs) or payment institutions (PIs). These deposits will follow their respective regulatory regimes for accessing and transmitting information during the tests and will be used to settle operations with “tokenized” Federal Public Bonds issued on the platform.

“It should be noted that the inclusion of deposits held by FIs and PIs aims to safely make available the benefits of DLT technology to SFN and SPB end customers”, said Bruno Batavia, from the Central Bank’s Currency Department, in a statement.

Read the full statement (original Portuguese, machine translated)

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