Roberto Campos Neto, the President of Brazil’s Central Bank, recently elucidated the challenges in harmonizing open networks with privacy features within distributed ledger technology (DLT). At the 2023 Council of the Americas Symposium and BRAVO Business Awards in Miami on Friday, he emphasized that most Central Bank Digital Currencies (CBDCs) are not purely DLT-based but rather a blend. DLT plays a part in the central bank, while a centralized approach governs the external transactions.
The essence of DLT platforms is openness. However, Campos Neto raised an important question about striking a balance between the benefits of open networks and the need for privacy. He believes that the industry is on the cusp of solving this dilemma. In his words, “So the question is, how can you have a DLT platform so that you have the benefit of the nodes producing the registration and the contract without affecting the privacy issue?” Additionally, he feels that CBDCs have the potential to revolutionize international transactions without necessitating a common currency.
Digital real and programmable money
Brazil has been a frontrunner in the digitization of payments. Campos Neto highlighted the meteoric rise of PIX, Brazil’s near-instant, almost-free payment system. On a single day this month, PIX recorded over 170 million transactions. Brazil has also developed its digital real, termed Drex, without undermining traditional banking systems.
Moreover, Campos Neto explained that Drex employs a simple, cost-effective tokenization method. These tokens are issued based on deposits, thus inheriting existing regulations for deposits. Consequently, this token-based structure will likely streamline banks’ balance sheets.
On another note, Campos Neto touched upon the programmable features of PIX, suggesting that programmable money could overhaul traditional credit card systems in Brazil within the next few years. He expressed optimism about the irreversible trend of asset tokenization, anticipating a future where assets have digital representations that can be easily and transparently managed. He warned that countries lagging in adopting digital and programmable systems would find themselves at a significant disadvantage.
Concerning international transactions, particularly in sectors like real estate, Drex could be transformative. Campos Neto pointed out that smart contracts paired with encrypted digital currency could simplify and speed up complex processes that usually require multiple intermediaries. Hence, Drex’s application goes beyond payments to potentially impact contract formulation and asset registration.
The remarks by Campos Neto are indeed instructive for governments and central banks exploring CBDCs and DLT technologies. However, they also signal that while advances have been made, challenges remain in reconciling the ideals of open networks with the imperatives of privacy and regulation. As central banks and governments globally mull over the future of digital currencies, the experiences and insights from Brazil could serve as valuable lessons.