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Brazil has been working on a CBDC for a considerable period. If everything proceeds as intended, the digital Real is expected to be introduced in 2024.
Upon its release, it will facilitate retail transactions for those who choose to utilize it, securing payments with funds from the users’ bank accounts.
Looking Forward
The Brazilian CBDC, however, will not disrupt other prevalent payment methods in Brazil, such as Pix.
A representative from the Brazilian government stated that the decision to advance the CBDC initiative was made to explore new opportunities for technological enhancement. The digital Real could also potentially lower the costs associated with credit and other consumer-facing financial products, enabling banks to serve a broader clientele.
“This could lower the cost of credit, enhance the return on investments. There is significant potential for new service providers, fintech, democratizing market access and introducing new services.”
Unfortunately, the current version of the Brazilian CBDC includes some intriguing code that may permit the government to directly intervene in users’ wallets.
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Concerns About Privacy
While there are many proponents of CBDCs, numerous individuals in the technology sector have expressed skepticism regarding government-backed digital currencies. Critics argue that a CBDC eliminates the advantageous features of decentralization and anonymity found in cryptocurrencies, effectively converting them into a mere abstract figure reflected in a bank balance.
Consequently, digital currencies would be subject to fractional lending and similar practices, with little genuine incentive for consumers to adopt them.
A government with extensive reach would likely be very interested in technology that maintains a permanent and unchangeable record of financial transactions.
After analyzing the source code for the digital Real, full-stack developer Pedro Magalhães shared his observations on LinkedIn.
Magalhães noted that the source code includes certain functions that would enable the government to directly freeze and unfreeze accounts, transfer, create, and destroy CBDC tokens in another person’s account, and manage assets on the user’s behalf.
While these functions might be intended to assist banks in providing loans and other financial services or to combat financial crime, there are also more concerning implications.
At this time, no official statement has been issued by any representative of the Brazilian government regarding this issue.
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