Brazilian real may not be fully converted into digital currency – Central Bank president

RIO DE JANEIRO, BRAZIL – Central Bank (BC) President Roberto Campos Neto said on Monday, May 24, that digital currencies such as the one being studied by the BC are better suited to digital contracts gaining strength with blockchain platforms, but he stressed that there are still many questions surrounding the new instrument.

In a videoconference promoted by EB Capital private equity firm, Campos Neto said that converting everyone’s physical money into digital currency will not be possible, because it would pose a risk to the financial system.

“If it is an extension of physical currency, and can be converted in the same value, at the same time, a complete conversion would have to be opened. That is, if the whole society demanded to exchange all physical money for electronic money, it could. This, obviously, can’t be done, because it would cause a tremendous problem for banks, which would suffer from the banking multiplier aspect.”

“There are several questions that have not yet been addressed in this world, and we are progressing, but I think the first step has been taken, which is to understand the pillars of the digital currency of the future,” he said.

On Monday morning, the Central Bank released guidelines that should be implemented in the potential development of a Brazilian digital currency issued by the monetary authority itself, for use in retail payments.

According to the Central Bank, the plan is for the digital currency to work as an extension of the Brazilian real. It will be distributed to the public by banks and fintechs, which will hold the custody of assets, but will be 100% backed by the Central Bank and will not be remunerated. Institutions will not be allowed to use these resources for investments or loans, as is the case with the Brazilian real.

“What will the exchanges and negotiations be like in the future? We understand that at some point this token movement, that is, converting securities into numerical codes and trading using blockchain platforms, we understand that this is a network that, irrespective of whether people like cryptocurrency or not, the network itself is very profitable and efficient,” said Campos Neto.

“And we will experience at some point, I think soon, an abundance of ‘smart contracts’, which are digital contracts. And then digital currency adapts better to digital contracts than physical currency,” he added.

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