Update: Visa, Santander Tapped To Trial Use Cases Of Brazil’s Digital Real

March 8, 2022
The Brazilian Central Bank (BCB) has named nine groups of participants in its LIFT Challenge, including Visa, Santander and Mercado Bitcoin, that will help evaluate use cases for its future digital fiat.

The Brazilian Central Bank (BCB) has named nine groups of participants in its LIFT Challenge, including Visa, Santander and Mercado Bitcoin, that will help evaluate use cases for its future digital fiat.

The BCB selected nine participants in its LIFT Challenge that will work to identify fundamental use cases and the technological feasibility of a central bank digital currency (CBDC).

The central bank received 47 projects and picked nine that cover a large variety of topics, including delivery versus payment (DvP), payment versus payment (PvP), internet of things (IoT), decentralised finance (DeFi) and security solutions during offline payments.

One of the projects selected, which includes Visa do Brasil, ConsenSys and Microsoft, will work on the development of a regulated DeFi platform that enables Brazilian small and medium-sized enterprises (SMEs) to interact with the global financial market on an open platform.

Another team, involving Latin America’s largest crypto exchange Mercado Bitcoin, crypto insurance platform Bitrust and the Research and Development Centre in Telecommunications (CPqD), will examine the use cases of DvP for native digital assets, with a particular focus on crypto-assets.

This proposal complements two parallel projects by Spanish bank Santander and, separately, by Brazilian bank association Febraban, which will look at the development of DvP on the infrastructure of the digital real.

In addition, DeFi lending pool AAVE will examine the use of DeFi to enable offering loans while ensuring compliance with the rules of the Brazilian financial system.

Meanwhile, German payments security company Giesecke + Devrient, which was among the winners of Monetary Authority of Singapore’s recent Global CBDC Challenge, will analyse cryptographic technologies that enable payments in a dual offline environment where both the payer and the payee are disconnected from the network.

Other selected entries include the Brazilian large bank Itaú Unibanco, which will work on a PvP project, Tecban, whose project will focus on combining DvP elements with IoT, and cooperation between Vert, Digital Asset and Oliver Wyman that will work on a tokenization project for rural financing.

During the four-month challenge, the BCB and Fenasbac will monitor and engage with the participants, which are expected to complete the implementation of the projects by July 29.

The LIFT Challenge was announced last December as part of Brazil’s plans to develop a CBDC. Pilot projects are expected to be carried out in the last quarter of the year, as reported.

Original Story: Brazil Central Bank Starts Testing Use Cases Of Digital Real
Published on December 03, 2021

The Central Bank of Brazil has announced a new partnership aimed at testing potential use cases of a central bank digital currency (CBDC).

Roberto Campos Neto, the president of the Brazilian Central Bank (BCB), announced the new initiative in his closing remarks of a series of webinars in the South American country held on policy questions related to a digital real.

The "Lift Challenge - Digital Real" aims to evaluate the use cases and technological feasibility of a Brazilian CBDC.

"We hope that the digital Real can become part of people's everyday lives, which will be used in conjunction with bank accounts, payment accounts, cards and cash, and which helps to diversify the portfolio of means of payments available to citizens," Campos Neto said in his speech.

The testing will be carried out in collaboration with market participants and the central bank civil servants trade union, Fenasbac.

The initiatives to modernise payment methods are part of a larger process of digital transformation that tje country has been going through, the BCB president said, adding that “the development of the digital real fits into the modernisation efforts of the central bank and represents a natural evolution of this agenda”.

With the digital real, Brazil sees the potential to incorporate new technologies, such as programmable money and smart contracts into their payment and settlement system, and to offer a native form of settlement between applications in the Internet of Things, the president added.

“The issuance of digital assets is a reality, and it is up to regulators to provide a safe environment for it.”

CBDC webinar series
Since July, the BCB has held seven webinars on various policy questions surrounding CBDCs, with the latest roundtable focusing on interoperability.

Although the central bank has not yet taken a decision on what would be the actual use cases of a potential digital real, interoperability is considered a key part of reducing costs and increasing the efficiency of payments systems.

Although current digital payments systems allow for the programmability of money and applications, there is significant room to improve efficiency and reduce costs.

“The key difference that we see [between today’s solutions and a potential CBDC] is that oftentimes those [programmability] rules are encoded at each individual organization and replicated. You have a lot of reconciliation that is required in order to ascertain whether the rules on either side should be maintained the same as we first defined them and agreed to them,” Ricardo Correia, global head of digital currencies at R3, told the audience.

“Reconciliation cost is a massive opportunity that we can reduce by encoding the actual rules in the network and on the asset itself.”

The other opportunity is the notion of composability, Correia said, where a central bank could provide a set of rules on a digital asset, and additional participants, such as commercial banks or payments service providers, can compose additional services and rules on top of that.

These opportunities would lead to the reduction of reconciliation and, hence, cost efficiencies.

In addition, if we consider interoperability between national CBDC platforms, the feature has the potential to improve cross-border payments.

Central banks have various options in how they could achieve interoperability, from the use of established messaging standards, data and other technical standards, to building technical interfaces to communicate with other systems.

The Bank for International Settlements (BIS) has proposed three different models on how central banks can enable the interoperability of their payments systems. These concepts include compatible CBDC systems, interlinked CBDC systems, and a single system for multi-CBDC.

For instance, Project Dunbar, which examines the feasibility of one network with multiple subnetworks within, represents the third model.

“When you have one network you have shared services that make it easier to interoperate. While there is a sovereign control of each subnetwork, they have the same digital ID schemes, same rulebooks, same governance models that facilitate interoperability,” Correia explained.

However, he noted that interoperability becomes more complex when it comes to cross-ledger solutions, such as the mBridge project.

“Interoperable bridges tackle interoperability on the data level, which is a slightly higher level than the protocols. Once we can tackle interoperability at the protocol level, that is when we truly unlock the ability to have assets moving freely and seamlessly across various boundaries and networks,” he said.

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