BC selects nine projects for study on digital real

Nine projects were selected by the Central Bank and Fenasbac (National Federation of Central Bank Employees’ Associations) to participate in the Lift Challenge on digital real.

The challenge represents one more step in the studies on how to make the implementation of a Brazilian digital currency viable.

In all, 47 proposals were presented by 43 companies. Due to the short period of development time, from March 28th to July 29th, some proposals were made in consortium.

Among the selected projects are solutions involving physical retail (Aave), real estate or vehicle transactions (Banco Santander), offline payments (Giesecke + Devrient) and interoperability based on blockchain, which allows international transactions (Itaú Unibanco).

Proposals were also chosen for a system for the settlement of financial assets (Febraban), use of delivery against payment (DvP) of digital assets (Mercado Bitcoin with Fundação CPQD and Bitrust) and use of the internet of things for the logistical means of ecommerce ( Tecban).

The list completes the list of rural finance cases with transaction tracking based on programmability (VERT, Digital Assets and Oliver Wyman) and solutions for interaction with the global financial market for small and medium-sized companies (Visa, Consensy and Microsoft).

“The selected proposals give us the opportunity to deeply debate the use cases of the Brazilian digital currency, maturing business models based on this technology to continue the process of creating our CBDC [Central Bank Digital Currency]”, says Lift Challenge coordinator, Fábio Araújo, in a note.

The chosen ones seek to solve issues that are obstacles to the implementation of the virtual version of the real, such as settlement of transactions with digital assets (delivery against payment or DvP) and solutions for exchange between currencies (pay against payment or PvP).

Ideas that covered the universe of internet of things (IoT) and decentralized finance (DeFi) applications were also preferred, in addition to those that sought potential payment solutions in which both payer and recipient are without internet access (dual offline).

Evaluating the use cases of the digital real was among the selection criteria, as was the interest for Brazilian society. Technological feasibility and ability to execute in the four months of the challenge were also taken into account.

“As it is a highly complex topic and the projects need more maturity, we expected to receive a dozen proposals. There were 47, a number well above the expected”, said Rodrigoh Henriques, leader of financial innovations at Fenasbac and coordinator of the Innovation Laboratory Financial and Technological (Lift Lab).

“The use cases were very well designed. This was a very pleasant surprise”, he added.​

The Lift Challenge attracted Brazilian companies, but also received proposals from companies based in seven other countries (Germany, United States, Israel, Mexico, Portugal, United Kingdom and Sweden).

Recently, the creation of digital currencies has entered the radar of central banks around the world. According to research by the Atlantic Council, an international think tank, 87 countries (representing more than 90% of global GDP) are currently studying the subject. In May 2020, there were only 35 countries.

The Bahamas became a major laboratory in creating the sand dollar, the world’s first digital currency issued by a central bank. Currently, nine countries have launched their projects, including Nigeria. Over the past year, China has experimented with the digital yuan in several cities.

The Lift Challenge is another step by BC towards the implementation of the digital real. In May of last year, the monetary authority released the guidelines for the new currency: forecast of use in retail payments, absence of remuneration, guarantee of legal certainty in its operations and adherence to all privacy and security principles and rules.

In July, the BC and Fenasbac will disclose the results of the proposals already with a minimally viable product (MVP). The best can be integrated with the pilots of the municipality.

According to the president of the monetary authority, Roberto Campos Neto, the first phase of testing the digital real, without interaction with the public, should begin in the fourth quarter of this year. The pilots are expected to extend throughout 2023, with the gradual inclusion of some customer groups.

Unlike cryptocurrencies such as bitcoin or ethereum, virtual money issued by the BC would be similar to paper money, secured and managed by the state, while other digital assets are unsecured, unregulated by the monetary authority and not widely accepted in trade. .

The difference between paper money and the digital real is that it cannot be converted into banknotes. The citizen will receive codes generated by the BC indicating the corresponding values. According to the municipality, the digital currency should stimulate innovation and competition in the virtual environment, as well as inhibit money laundering.