After tests in China, Central Bank advances with Brazilian digital currency and studies issuance model

LARISSA GARCIA

Sun., April 18, 2021

BRASÍLIA, DF (FOLHAPRESS) - Shortly after the Chinese government started the testing phase of its virtual currency, popularly known as e-yuan, the Brazilian Central Bank announced advances on the subject. The president of the municipality, Roberto Campos Neto, said that he will "soon" bring news about the launch of official digital money, which has been designed by the monetary authority in recent months. According to the Central Bank, studies in the area have advanced a lot. The first step in the timetable for the launch of the Brazilian digital currency was the creation of a working group, in August of last year, to discuss the impacts, benefits and costs of the new monetary model. Since then, the BC has been working on the production of a detailed report, already with alternatives for the implementation of virtual money until 2022. At the time, the idea was that the document would be produced in six months, but, according to the BC, it has not yet it's ready. The report will be delivered to the Collegiate Board, which will make the decision whether or not to proceed with the project. The digital currency issued by the monetary authority would just be a new way of representing money already in circulation. That is, it would be part of the country's monetary base. The new model is widely defended by Campos Neto. The BC's objective with the implementation of the instant payments system, Pix, and open banking is that both culminate in the creation of a digital currency. Open banking, or open financial system, opens the way for consumers to share their data with other institutions in search of better credit conditions and financial products on a single platform. For experts, in addition to the Covid-19 pandemic, which advanced the movement to digitize payments, China's advance on the subject should make other countries - including Brazil - accelerate the implementation of their virtual currencies. "I'm sure [the Chinese digital currency] will give impetus. With China leading the way, everyone was provoked to think about the matter. There is a problem of supply and demand, since it is a project that requires investment. So the discussion is whether it would be accepted by the population", evaluates Eduardo Diniz, professor at FGV (Fundação Getulio Vargas) and researcher in the area of technology. For him, the high adherence to Pix is an indication that the digital currency would be well accepted by Brazilian society. "The pandemic accelerated this whole process of digitization and forced people to adapt. It is a process with no return, so this demand does not decrease, it only increases." No country in the world has official virtual money. The issuance of digital currency by the government, called CBDC (Central Bank Digital Currency), is in the final stages of implementation in China. Earlier this year, Beijing distributed virtual resources, downloaded by cell phones, to the population for people to test the new feature. If Brazil advances quickly in the project, it could be one of the pioneers. "In the United States and Europe, the decentralization of central banks can make this process difficult. It can be difficult to reach a consensus for the creation of virtual money", ponders Diniz. CBDC would work as a complement to Pix and would be distributed by the financial system, as is done with physical money, only through digital means. "I don't believe that there would be an expansion of the monetary base [amount of money in circulation] just by creating the digital currency. I think that a part of what would already be issued in paper money would go out in virtual form. I don't see inflationary risk", ponders the economist head of the consulting firm Análise Econômica, André Galhardo. The difference between official virtual money and cryptocurrencies that exist on the market today (such as bitcoins) is that the one issued by the BC would be similar to paper money, guaranteed and managed by the State, while the others have no guarantees. Furthermore, digital money would also have no speculative effect. “Crypto assets do not have the basic characteristics to be considered currency. For example, bitcoin is not accepted anywhere. it and are much less volatile," said Galhardo. For the economist, the digital currency can give more power to monetary policy. "The big difference is in this way. In the direct transfer of resources from the government to the population, as was done with emergency aid, the fact that the money can be traced is very significant. In the world, for example, the creation of a record with an expiration date. It is a structural change that would give more power to monetary policy", he says. The distribution of banknotes and coins is done through the banking network, but in transactions with paper money, the consumer does not need to have a bank account. In order to use the virtual currency, he would need to be banked. The BC's main objective is to reduce the demand for paper money to reduce costs. According to a survey carried out by civil servants of the municipality, in 2019 BRL 90 billion were spent on transport, storage and security of cash, which includes all disbursements with armored car and mandatory security procedures.