BRAZIL’S CENTRAL BANK IS DEVELOPING MECHANISM THAT CAN FREEZE CITIZENS CONVERSION TO CBDC
In a recent paper published by the Bank for International Settlements (BIS), Fabio Araujo, an economist at the Central Bank of Brazil (CBB) who also oversees the digital financial services of the country's largest bank, has stated that financial authorities will have considerable power. to control people's money once its CBDC has been issued. Through the use of Real Digital, the central bank will be able to stop banking operations and place additional restrictions on citizens' access to finance.
Real Digital, a digital version of Brazil's national currency, has been debated in the major banks since 2015 and will have its first trials in 2023 using nine solutions presented by private companies during a recent Lift Challenge event hosted by CBB.
Cointelegraph reported that the next CBDC amount will be paid into the national fiat payment system STR, also known as the Reserve Transfer System.
With Real Digital, the big bank says it wants to empower so-called smart payments in a controlled environment. Smart payments include smart contracts, online Device Devices transactions and split financial applications (DeFi).
In a BIS document, Araujo said the main purpose of launching the CBDC was to provide entrepreneurs with a safe and secure environment in which to innovate through planning technology that makes smart payments a reality.
"The technology available to get smart payments, as seen in crypto assets, makes room for new business models and is better suited to meet people's needs," he said.
Related: Fed Fed paper looks at potential CBDC implications for monetary policy
The Central Bank may 'suspend' withdrawals
In the paper, Araujo emphasizes that the central bank must maintain relationships with the private sector in providing financial assistance to the market. According to Araujo, the central bank can visualize the interaction between Real Digital and private money issued by CBB-controlled institutions on prudent payments.
Therefore, individuals can convert their deposits into tokens to access the services provided in this new platform, under a commitment that these tokens will be converted to Real Digital. In other words, banks will be able to issue their own tokens intended for smart contract applications with their balance in Real Digital as guaranteed transactions.
"Commercial deposit tokens will inherit all the rules and features of their parent property, such as budget requirements that are part of a set amount," he said. "Similarly, deposit tokens [payment service providers] will inherit their features, such as the total reserve requirements."
However, unlike the cryptocurrency ecosystem where users own their assets and no one can lock their operations, there will be a system to shut down withdrawals from the CBDC of Brazil.
Araujo suggests that, for a period of time and for various reasons, there may be a bank transfer where users wish to convert these tokens to Real Digital, which will be guaranteed by the central bank. To avoid such use of the bank, the CBB already provides "backlinks and limitations in the bath of conversion to and from CBDCs."
The central bank suggests that the flow of these tokens to Real Digital will be limited and may even require advance planning. In other words, the central bank will have the power to control the flow of money within the system.
The paper explains:
"Another source of concern, however, is the speed at which private tokens can be converted into CBDCs, which can restore connectivity methods. they can be used automatically when continuing to issue tokens at any particular institution would put them at risk. ”
Araujo concludes the document by pointing out that Real Digital, by empowering smart contracts and strategic financial solutions in the Brazilian financial system, will allow for the creation of customized financial services to meet various social needs.
This paper concludes that these resources, when combined with financial education, can provide effective benefits and benefits to all people of the country, even those who are still at the forefront of the financial system.