CBDC Pilots Ready For Take Off In Brazil, Russia And Japan

February 22, 2023
Brazil, Japan and Russia have become the latest economies to announce a pilot for a central bank digital currency (CBDC) as global momentum continues.

Brazil, Japan and Russia have become the latest economies to announce a pilot for a central bank digital currency (CBDC) as global momentum continues.

Although many markets, particularly in developed countries, have struggled to make a strong use case for CBDCs, progress continues unabated as the latest batch of markets announce new pilots.

This includes Brazil and Russia, which will follow fellow BRICS markets China and India in forging ahead with plans to pilot digital fiat, having announced a limited number of participants in a live test environment.

Meanwhile, Japan, which has so far seemed to be relatively cautious about the prospect of a digital yen, is also planning a pilot, albeit with a more limited scope.

Digital ruble tests kick off in April

Last week (February 17), the deputy chairman of the Bank of Russia, Olga Skorobogatova, told Russian newswire TASS that the central bank is planning to launch a CBDC pilot on April 1.

As part of the test, the digital ruble will be used in live peer-to-peer payment transactions with the participation of 13 banks.

“The pilot will work on real operations for real people, but only for a limited number of them, with the 13 banks that have signalled they're ready," Skorobogatova was reported as saying on the sidelines of a cybersecurity forum.

The CBDC testing will not be open to the general public and the Bank of Russia plans to scale it up following the pilot, according to TASS.

Russia first announced plans to issue a CBDC in October 2020 when it published a consultation paper outlining the main features of a digital ruble.

As described, the digital fiat will be issued by the central bank, while commercial banks will participate in the process by opening wallets for their clients on a special digital ruble platform.

An initial pilot was carried out in 2022 in a test environment which will now move to involve real transactions with plans to enable the CBDC for public use in 2024.

In addition to transaction cost savings and enhancements to cross-border payments, policymakers have previously highlighted that one desirable outcome of the digital ruble could be the country’s reduced dependence on the dollar and less exposure to sanctions from third countries.

Since Russia invaded Ukraine almost a year ago, the country has taken several steps to circumvent Western sanctions.

These steps have ranged from allowing foreign banks to transfer funds in rubles abroad from correspondent accounts opened with Russian banks, exploring alternatives to SWIFT and welcoming China’s UnionPay to facilitate cross-border card payments.

Brazil’s CBDC pilot ON

Meanwhile, Robert Campos Neto, the president of the Brazilian Central Bank (BCB) has also revealed that its digital real pilot is “starting right now”, although with different goals in mind.

Campos Neto has been pushing a bold digitalisation initiative at the central bank in which a CBDC represents just one available payment method as part of a grandiose super app that will bring together a person’s “entire virtual and physical financial life in the same place”, and will also support Pix and cryptocurrencies.

Instead of using several mobile apps from several banks, users will have “some kind of integrator”, Campos Neto said in November when outlining the central bank’s plans. The app will offer users Pix-like features, such as presenting a complete picture of all their savings, being traditional or crypto-based payment functionality.

In earlier statements, the central bank president said the regulator was working on a solution that integrates the digital real with open finance, which would facilitate the sharing of data, products and services between regulated entities.

The pilot is not open to the public but “banks are helping a lot” in the development of the project, according to Campos Neto.

Although no timeline has been given for the actual launch of the digital cash, Campos Neto previously hinted at plans for public rollout by 2024 before his term ends at the end of that year.

Japan enters testing phase too

By contrast, Japan’s digital yen pilot will feature simulated transactions only.

The announcement follows two proofs of concept (PoC) — one focusing on the CBDC ledger, while the other one involving more complex operations and additional functions for the CBDC.

The Bank of Japan (BoJ) says the pilot is intended to test the technical feasibility of other features not fully covered by the PoCs and engage with the private sector to build on their knowledge in designing the CBDC ecosystem.

“If a CBDC were to be issued in the future, exploring its framework in such a phased manner and engaging in highly transparent communication with the private sector are necessary steps to take for adoption in society,” the bank said.

Unlike Russia and Brazil, Japan has not yet reached a decision on whether to issue a CBDC.

Japan has been among those countries that are sceptical about the actual benefits of the digital fiat and is mainly engaged in CBDC experiments to “catch up” with new advances in blockchain technology, as reported by VIXIO.

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