Brazil central bank announces CBDC plan one year after meeting Ripple

Rick Steves

The BCB launched a working group for the development of its digital currency in August 2020. This was two months after holding meetings with Ripple Labs.

The Banco Central do Brasil (BCB) has been promoting discussions, internal and with its international peers, aiming at the possible development of a CBDC.

The central bank digital currency would aim to keep up with the dynamic technological evolution of the Brazilian economy, enhance the efficiency of the retail payment system, foster new business models and other innovations based on technological advances, and favor Brazil’s participation in regional and global economic scenarios, increasing efficiency in cross-border transactions.

Launching a CBDC will be consistent with the central bank’s mission of ensuring the stability of the currency purchasing power, fostering a sound, efficient and competitive financial system, and promoting the economic well-being of society.

The central bank’s guidelines for the potential development of a CBDC include:

emphasis on the development of innovative business models based on technological advances, such as smart contracts, internet of things (IoT), and programmable money;
use in retail payments;
ability to perform online operations and possibly offline operations;
issuance by the BCB, as an extension of the physical currency, with distribution to the public intermediated by custodians of the SFN (Sistema Financeiro Nacional) and SPB (Sistema de Pagamentos Brasileiro);
not be interest-bearing;
guarantee of legal certainty in its operations;
adherence to all privacy and security principles and rules determined, in particular, by the Bank Secrecy Law, and by the General Law for the Protection of Personal Data (LGPD);
technological design allowing full compliance with international recommendations and legal norms on preventing and combating money laundering, the financing of terrorism, and the spread of weapons of mass destruction, including the compliance with court orders to track illicit operations;
adoption of solutions allowing for interoperability and integration, aiming at the improvement of cross-border payments; and
adoption of standards for resilience and cybersecurity equivalent to those applicable to critical financial market infrastructures.

The BCB launched a working group for the development of its digital currency in August 2020. This was two months after holding a meeting with Ripple Labs.

The firm had a closed-door meeting with the central bank on May 30, 2020, to discuss “institutional matters”. A video conference between BCB president Roberto Campos Neto and Ripple CEO Brad Garlinghouse and three other Ripple representatives can be seen in the central bank’s institutional site.

Mr. Garlinghouse’s firm is not the only one looking to partner with Brazil for the issuance of the CBDC. In 2018, R3 published a report delivering insights on how to approach a digital currency in the country, with three possible models.

Ripple has opened an office in Sao Paulo to set foot in Latin America and expand its footprint from there.

A recent report from CPA Australia stated that France’s central bank, Banque de France, has openly discussed Ripple/XRP as a possible platform for Europe’s central digital currency.

According to the document, “Ripple and XRP enjoy the trust of many banks as a model for CBDCs because it is highly centralized and is based on a permissioned network where only certain network nodes can validate transactions, as opposed to decentralized and permissionless Bitcoin and Ether. Ripple also allows the creation of new currencies and Ripple developers can decide the timing and quantity of supply in a similar way to current central bank operations.”

Ripple Labs has released a whitepaper pitching the XRP ledger as an intermediary to connect different central bank digital currencies. ‘The Future of CBDCs’ touts XRP as a neutral bridge that provides intermediation between different currencies in an efficient way.

Ripple is piloting a private version of the XRP Ledger to provide a distributed ledger offering to central banks who wish to develop, issue, and manage their own sovereign-backed cryptocurrencies, but competition is fierce.

Ripple claims its CBDC Private Ledger, which is based on the same blockchain technology that powers the XRP Ledger (XRPL), is able to satisfy the needs of governments and economies with a secure, controlled, and flexible solution.

Over 80% of Central Banks are actively studying the development of their own digital currencies and Ripple claims its CBDC ledger is both private (for transaction privacy and control over the currency) and interoperable (to connect with today’s existing global financial infrastructure, as well as other CBDCs and other digital currencies), as well as customizable.

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