Brazil’s central bank allows firms to participate in digital real CBDC pilot

Brazil’s central bank has officially launched its central bank digital currency (CBDC) pilot, allowing financial institutions to propose new projects for the pilot.

Banco Central do Brasil announced that it would select 10 commercial banks meeting specific criteria for the CBDC pilot. The banking regulator disclosed that in the second stage, participating institutions would be increased to up to 20.

Participating institutions will be selected based on their previous experiences with distributed ledger technology (DLT). Another criterion laid down by the central bank is that only institutions included in the National Financial System Network will be considered.

While commercial banks might be preferred over other types of financial institutions, Banco Central do Brazil revealed that it would be throwing a wide net to find participants. The participating firms are expected to be drawn from payment providers and established fintech firms, provided they meet the stipulated requirements.

Special attention will be given to the size and the international reach of the applying institutions. The last consideration by the central bank in selecting applicants is the nature of transactions expected to be simulated in the pilot.

“Given the complexity of this environment, it is very important to have well-defined and transparent rules and procedures,” Bruno Batavia, an official from the central bank, said.

The latest move comes on the heels of the successful completion of the Real Digital Lift Challenge on March 2022. Participants during the competition submitted applications for real-time settlement of tokenized assets, currency exchange, Internet of Things (IoT), and decentralized finance (DeFi).

Participating institutions include DLT firms and traditional finance companies like Mercado Bitcoin, Banco Santander Brazil, ConsenSys, Microsoft (NASDAQ: MSFT), and Visa Brazil.

More countries join the race for CBDC launch

As several countries join the race for CBDCs, an underlying theme is a frenzied approach by central banks to keep up with their pioneers. The hurried approach has raised concerns about the implications of a botched CBDC launch, noting that they could adversely affect local payments.

To this end, the International Monetary Fund (IMF) intends to publish a CBDC handbook to assist central banks in their quest to launch digital fiat currencies. The IMF has previously confirmed that over 40 countries have solicited technical assistance for CBDCs while over 100 countries are hurtling toward CBDC development.

To learn more about central bank digital currencies and some of the design decisions that need to be considered when creating and launching it, read nChain’s CBDC playbook.

Watch: Central Bank Digital Currencies and Blockchain