Brazil is planning to create a Central Bank Digital Currency (CBDC) in 2024, a movement to make Brazil an economic leader in South America.
Brazil officially the Federative Republic of Brazil (Portuguese: República Federativa do Brasil) is the largest country in South America and Latin America. As of 2022, Brazil has over 217 million people, and more than 30 million Brazillian citizens have no bank accounts, and no credit or debit cards. Brazil is the world's fifth-largest country by area and the seventh most populous.
What’s going on there?
For around a decade, Brazil has been enacting lawmaking desired at changing the situation. Yet, the results have fallen short of expectations. To better comprehend the reason, let’s take a step back to look at a noted outlook.
Brazil has keenly been focussing on the banking sectors due to the macroeconomic volatility, updating the legacy technology, and rigid management. Somehow, regulators required ramparts to build local financial systems that are adaptable to scale. Attention was an unavoidable flipside of that approach.
Yet, the ratio began to diverge, with regulators evoking competition via novel lawmaking in tune with technology trends, smarter management, and better macroeconomic circumstances. This process, incorporated with the “software is eating the world” phenomenon, significantly contributed to building a prolific habitat for the fintech boom.
PIX, Instant Payments
In 2020, the Brazilian Central Bank started instant payments infrastructure, PIX. Presently PIX has more than 122 million active users, nearly 57% of Brazil's population.
PIX is the first electronic transfer used by 40% of users, which signifies the tremendous potential of technology for financial inclusion. PIX became a standard technology used among many countries for their financial transactions and was honoured by the Bank of International Settlements.
The Open Finance agenda was another influential phase for extending the financial inclusion and contest for agenda. Because it permitted the interaction of consumer data between financial organisations, letting to more tailored product offerings to consumers.
Open Finance went live in 2021, more than 800 financial organisations partaking and more than 9.6 million consumers have agreed to information sharing.
In line with the effort to provoke innovation, the Central Bank of Brazil has approved links to the revolution initiated by cryptocurrencies and blockchain.
Blockchain technology is capable of opening access to financial products for a more significant portion of the residents via the tokenization of the Brazilian currency in a practical way.
On getting into the action, initiated the cost analysis of retail payments in the United States representing about 0.5% to 0.9% of GDP. This can be reduced depending on the on-chain solution and can be reduced to practically zero.
Allocation of on-chain digital currency with rising demand by the regulatory body. Central Banks in many nations started developing central bank digital currencies (CBDC).
This is to initiate the inculcating of blockchain technology in a regulated context, in line with their national financial policies, enabling various case studies in credit, KYC/AML, and tokenization of on-chain and off-chain assets.
CBDC for Brazil
The Brazilian CBDC is hoped to be entirely enforced in 2024. PIX and Open Finance deliver us the force to glance at that prophecy positively.
There are countries like the UK, China, and the USA that have their agendas for financial solutions. China has an agile payment system through digital wallets used by one million Chinese every month.
In addition to instant payments, the UK had an Open Finance System since 2018, it has been kept as a benchmark for various countries including Brazil.
Compared to other nations like China with 88.7%, the US with 95.0%, the UK with 99.8%, and Citizens with Bank accounts in Latin America is 73.7%. These numbers convey close to 200 million people, with millions more underserved by conventional financial products in the parts. But None other than Brazil has advanced as quickly in a progressive regulatory agenda in Financial inclusion.
Brazilian controllers are devoted to building a cutting-edge economic resolution with an unbanked population. This may boom financial inclusion with highly fertile and traceable yield even inclusive of the small businesses in the financial system.
Major Key partakers entangled in Brazil CBDC
Renato Valente is general partner at Iporanga Ventures. He earlier served as the originator of Ocapi, an ad-tech start-up sold in 2015. He also acted as the Brazil Country Manager at Telefonica Open Innovation and as the head of Wayra Brazil, where he guided more than 30 investments in start-ups including Gupy, Teravoz, and Monkey. Before that, he worked at IBM. He holds a BA in business administration from FAAP with specializations in global management from IESE (Barcelona) and Venture Capital from UC Berkeley.
Leonardo Teixeira is a general partner at Iporanga Ventures and has acted as an investor in more than 50 technology companies since 2013. He previously worked at Macquarie Group and Barclays PLC in São Paulo, London, and New York. He holds a BA in production engineering from Poli-USP and an MBA in finance from Insper.
Conclusion
In recent trends, cryptos are adopted in all sectors and government policies. Governments are coming forward to frame legislative laws and committees for extending cryptocurrencies for commercial purposes. Nations are preparing to establish their cryptocurrency in the form of CBDC. In the future, cryptocurrency would become mainstream for international trade and goods. Further cryptocurrency trading platforms would become inevitable for international transactions.