Brazil’s Central Bank Launches CBDC Study

The Banco Central do Brazil has launched a study group to research Central Bank Digital Currencies (CBDCs).

In an Aug. 21 announcement, the central bank of South America’s largest economy explained that the study’s objective is to evaluate the benefits and overall impact of the issuance of a digital version of the Brazilian fiat currency—the real.

No more “paper and metal disks”

Aristides Andrade Cavalcante Neto, the study group’s coordinator, explained that “the amount of electronic payments has been growing in recent years, thanks in particular to the evolution of mobile devices and communication technology.”

While so many payments have moved to the digital realm, Neto noted that money is still represented by “paper and metal disks” and is devoid of a digital form. 

“A digital currency issued by a central bank would allow Brazilians to interact with their money in a completely digital way,” he said.

Chasing China

At least part of the reason for the study is to keep up with other countries looking at CBDCs, according to the release.

“The subject of digital coins issued by central banks has been on the research agenda of many central banks for some time,” said Rafael Sarres de Almeida, another study group member. “[H]owever, this year, there was a greater focus in a more practical approach.”

Specifically, “China has already entered the final testing phase of its digital currency and many monetary authorities have announced new projects,” he added.

The People’s Bank of China has been testing the digital currency in four cities since April, and in August the bank expanded the tests to the country’s economic heartland including Beijing, and Hong Kong and the wealthy Guangdong province.

France began testing a version of a digital euro in May, while other countries including Japan, Canada, and Sweden, are also aggressively studying CBDCs, as is the EU. The U.S. is also studying it, but doesn’t foresee creating one until 2025 at earliest.

 Goals and benefits

Central Bank’s financial specialist Bruno Batavia said that issuing a digital currency would result in a “reduction of the cost of issuing and maintaining cash, banknotes and coins that circulate in the economy.”

The Banco Central do Brazil said the issuance, custody, distribution, handling by trade, collection, disposal and other indirect costs of managing physical currency is costing the Brazilian government 90 million reais per year—more than $16 million. In general, this cost usually takes up 1% to 2% of a given country’s GDP depending on the size and features of the economy, it added.

Sarres de Almeida pointed out that the launch of the study group does not mean that Brazil’s Central Bank already decided to issue its own CBDC. The working group will just allow the institution to “study the subject and give society a response on the topic.”

He also noted that he believes the study will shed light on the impact of CBDCs on financial inclusion, economic growth, technological innovation and the increased efficiency of transactions.