CBDC can prevent bank runs, says BIS

Almost every central bank on the planet is developing a Central Bank Digital Currency (CBDC). These are fully digital versions of existing fiat currencies. ‘But the euro and the dollar are already digital, what’s the use of this?’ you might say. The Bank for International Settlements (BIS) has a research report published describing how Brazil is taking its first steps towards a CBDC.

Programmable Money

The report was written by Falio Araujo, an employee of the Central Bank of Brazil (CBB) and is responsible for the country’s CBDC project. He writes how working on a fully digital version of the Brazilian real has a number of goals. First of all, the payment system in the country is already quite modern, but it could be even better. A CBDC should give more people access to the financial system. A central bank that can send money directly to people seems to fall under this.

It is striking that Araujo also indicates that a CBDC must have new functions to justify its existence – after all, the digital Brazilian real already exists. One example that is mentioned is that it couch runs can occur. Payments could be stopped and limits set on transactions.

The speed of conversion of ‘private tokens’ (read: ‘regular’ cryptocurrencies) would also pose a challenge. Regular crypto will therefore continue to exist, but there may be transaction limits. The programmability of money and CBDCs in general is a key point in the report. The central bank even mentions the word smart contracts explicitly.

State and central bank remain separate

The author also emphasizes that the influence of the state and that of the central bank must remain separate. If economic policy were mixed with politics, policymakers could gain too much influence over the population. The central bank apparently believes that this is still not the intention.

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Eand fully digital real already appears since 2015 to be discussed with the central bank. This central bank is not alone in this, for example, the European Central Bank (ECB) has also been working on a CBDC for years.

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