A threat to privacy and financial freedom?

Key Facts:
  • Unlike cash, CBDCs offer no protection for users’ privacy.

  • Analysts see some demand opportunities for real digital in the South American country.

The digital real pilot program will enter a new testing phase in July, although it is currently causing concern in various parts of the Brazilian financial sector. Experts and analysts are voicing their concerns, and many agree that the Brazilian central bank digital currency (CBDC), which is in development around the world, represents risks for residents of the South American country.

Some experts agree that it’s worth taking a moment to think about the risks The Brazilian Central Bank issues a new version of the national currency.

There are those who worry that Real Digital will work without proper guarantees of privacy.

Other threats are the programmability of money tied to the central bank and how it relates This means less financial freedom for people.

Meanwhile, a study found that Brazilian CBDCs have little demand and little potential for monetization.

In short, Real Digital is the focus of experts in Brazil, and one might wonder if the country is really worth investing the time and resources to roll out a CBDC.

Above all, if one takes that into account Threats and risks of issuing a new version of Brazilian currency They actually already exist in today’s digital banking system.

Real Digital in Surveillance: Beware of Privacy

Febraban Tech, A event This week the Latin American financial sector in Brazil had Real Digital among its protagonists, as it is considered the pioneer of the technological evolution of banking in this country.

At the event, said Larissa Moreira, CBDC coordinator of Itaú Unibanco. Privacy and programmability of Real Digital will be put to the testSo, till now, there is nothing clear about the security guarantees that the project offers to the users.

There is concern about how we respect existing legislation, as we have the General Data Protection Act (LGPD) which restricts what users can store on a real digital platform or disclose in this context. There’s also bank secrecy, and how it all ties into the CBDC, which runs on a private permissioned Ethereum-compatible blockchain (Hyperledger Pesu).

Larissa Moreira, CBDC coordinator at Itaú Unibanco.

The expert thinks that Details will be known till February 2024 About how the Brazilian CBDC will work.

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Fabio Araujo, coordinator of the central bank’s real digital project, believes that the population will start interacting with the CBDC by the end of 2024, „but everything is conditional on the pilot project and privacy tests”, so nothing. Be clear about it.

Fabio Araujo.
Fabio Araujo said the tests, which will begin next week, will define how RealDigital handles privacy and programmability. Fountain: Febraban/YouTube.

„We must Find a balance between privacy and usability to create products This will allow us to provide better use of digital assets,” Araujo clarified.

CBDC: Is Privacy at Risk?

Therefore, it is important to take into account when defining how to protect the personal data of real digital users. CBDCs, unlike paper money, generally offer no privacy protections of users.

At least that’s what he warns A study It examined the risks posed by central bank digital currencies.

This kind of direct connection between the citizen and the central bank makes CBDCs completely different from digital money already in use today. While a central bank digital currency does not offer unique benefits to users compared to existing technologies, it poses serious risks. For example, a CBDC could spell the doom of some remaining financial privacy protections.

Risks of CBDCs, USA Canton Institute.

In compliance with international regulations against money laundering and terrorist financing, Central Bank Digital Currencies (CBDCs) are not allowed to be completely anonymous. So indicates that A document Examining regulations on CBDCs.

China’s digital yuan, one of the world’s first developed CBDCs, exposes users to the risk that runs with using this version of China’s national currency.

Posted by CryptoNoticias 2 years ago, it’s clear China’s central bank has the power to monitor the digital yuanNot only nationally among citizens who use it, but also among foreign companies operating in the country.

For every transaction made with the digital yuan, the People’s Bank of China can analyze who is paying, how much, where people are, and then analyze each user’s patterns.

Indeed, the Chinese people have expressed their fears The new payment system is a new system of state control. And as the country becomes a cashless society, he expects digital transactions to be the new norm, leaving behind a new way to control the money supply.

Yuan Digital.
Payment systems expert Richard Turin said the digital yuan is one of the most modern in the world, but it still faces challenges such as citizen privacy and financial inclusion. Fountain: Inspired Money/YouTube.

What is Brazilian CBDC for?

The Brazilian financial sector gathered at the Febraban Tech event to discuss opportunities for the central bank to leverage technology to digitize its products and services. Still, though There is a lot to discover about events using Real Digital.

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Jaime Sadak, head of digital assets and blockchain at Brazil’s Banco Santander, spoke on the matter. He believes it’s „time to get our hands dirty and try real digital in the Brazilian context.”

Also, Sadak refers to the process that takes place when a project moves from theory to practice. Leandro Vilain, a partner at financial services firm Oliver Wyman Brazil, says it’s important to „understand what the central bank digital currency is actually used for.”

To take this step, the villain proposes Step away from technical discussion to analyze use cases How will it benefit the end consumer of Real Digital? Identify what it’s for and evaluate priorities.

Speaking precisely about priorities, Fabio Arajo says „the first guide”. [para el desarrollo de la CBDC brasileña] An application of a blockchain platform It allows registration of assets of different nature ie multiple assets”.

From what is known so far, the Central Bank of Brazil will register three types of assets in this environment:

  • True digital: between wholesalers or banks; Central bank currency, today’s bank balances or settlement accounts;
  • True Tokenized: For Retail; tokenized versions of bank deposits; Money is a digital version of what every person keeps in the bank.
  • Direct Treasury Securities: Opportunity to buy and sell Federal Public Securities (TPF) in the primary and secondary market.

Based on this, the team around the development of the Real Digital platform has identified a continuum of services offered to individual, corporate, institutional and government clients. And all these assets will be under the protection of Central Bank A Webinar recently

Opportunities and challenges of the project

A study Published This week Oliver Wyman, a consultancy, explored all the potential applications in Real Digital, but also warned of the challenges the pilot project will face going forward.

In sum, the Central Bank of Brazil Mentions 13 potential use cases for CBDC Brazilian, considering retail, wholesale and financial institution applications.

From the central bank’s perspective, a truly digital platform would allow users to store non-financial assets and make payments offline. It facilitates fund aggregation, micro-payments and multi-counterparty management of assets. All this together with tokenization of assets and tax collection.

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Similarly, a true digital platform facilitates user access to digital insurance, trading of financial assets and low liquidity assets. In addition, it will allow the management of guarantees in the capital market, cross-border payments and securitization of loans.

However, Oliver Wyman analysts believe the project primarily enables retail use cases of non-financial asset ownership and micropayments. But still Raise a red flag when it comes to financial inclusionSince the security of assets is kept by banking institutions.

On the other hand, analysts warn about the low possibility of implementing platform payments offline, as it is not yet central to the central bank and it is not clear how it will be used until now.

For financial institutions, according to the report, financial asset trading, non-cash asset trading, collateral management and securitization will be the most favorable use cases.

But it is worth noting that in the case of cross-border payments, the functionality of the actual digital platform is also important. Not tested with other networksSo the use case is questionable.

Only 6 out of 13 use cases are accepted

By combining the potential of a truly digital platform with the current needs of the market, Oliver Wyman analysts conclude that Brazil Only 6 out of 13 use cases offer CBDC.

Analysts believe that users will be interested in CBDC:

  • Property rights to properties provided by Real Digital.
  • Micropayments.
  • Management of multiple counterparties.
  • Trading in low liquidity assets.
  • Warranty Management.
  • Debt securitization.

Ultimately, the report points out Brazil still has fewer use cases and no monetization possibilities For your Royal Digital

„International experience shows disruptive opportunities through CBDCs to meet customer needs or improve internal processes of companies,” the analysts say.

However, the report notes that „there are high expectations for the trials to be carried out with the Real Digital Pilot”. But before delving into them, they warn, „Companies need to research and prepare themselves, identifying opportunities for monetization/optimization and potential threats to the current business model.”

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