Why do Brazil, China and the USA want to abandon ballots?
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Autor: Yadunandan Singh
Assunto: TIC Domicílios
Countries like Brazil, China and the United States could be the next to switch from physical money to digital currencies as the basis of the economy. The idea, already put into practice in Sweden, aims to reduce the cost of printing money. Also, have more control over financial transactions.
In theory, the change may seem simple to some, but it is not something easy to apply because it still faces technological, cultural and socioeconomic obstacles. tilt spoke with digital asset experts to understand what digital currencies are and the differences between them and crypto assets (such as Bitcoin and Ethereum).
They also explain how close we are to seeing traditional paper money disappear in Brazil.
Physical money goes out, digital comes in
According to Nicolas Farto, specialist in variable income at Renova Invest, an office linked to BTG Pactual, digital currencies involve CBDs (Central bank Digital money), which are Central Bank projects to digitize the country’s monetary base. “We no longer use paper money, but a token [ativo digital] representing this paper money”, explains Farto.
In practice, they are digital assets that can be used for financial transactions. However, unlike cryptocurrencies like Bitcoin, their issuance needs to be managed by a Central Bank — just like paper money is issued.
Better understanding digital currencies vs current cryptocurrencies
The technology behind bitcoin involves blockchain (blockchain, literally translated), which consists of a public, open and auditable record of transactions, so that any undue changes can be reversed, preventing fraud.
Among other advantages are: the transaction time between sending and receiving money is much faster than conventional methods. As it does not need intermediaries, the transfer can be carried out with people from anywhere in the world without going through banks.
And that’s where one of the big differences with digital currencies comes in—which needs a Central Bank to manage them. “In practice, [seria] a structure similar to what it is today”, he adds. Only in a format for issuing new tokens in a non-decentralized way (learn more about this at the end of the text).
Cryptocurrencies are validated through tokens, which are found by miners all over the world. A miner can be an ordinary person, who uses computers to solve complex calculations, figuring out numerical sequences to arrange the blocks. already in one CBDvalidation is in the hands of the Central Bank.
This allows greater control over the currency, being able to use it in favor of the country’s monetary policy. “The digital real would allow for much more control to inspect these currencies. With a CDBC, the Central Bank opens the way to having other monetary policy tools, such as expiration date, checking your wallet and knowing where you are sending [o dinheiro]”, says Farto.
“But there are also fears. For example, a Central Bank that wants to stimulate consumption can adopt a validity period for the currency and that would force people to spend it within a certain period. It can also confiscate a person’s reserves to avoid corruption But this can also be used questionably. It’s a lot of power in the hands of a central body that can make mistakes”, he adds.
Digital Yuan: The Chinese InitiativeCurrently, China is one of the most advanced countries in replacing paper money. The digital yuan is under the control of the Chinese Central Bank, and financial institutions are required to submit data on financial transactions to prevent money laundering and corruption crimes.
“China’s currency has just started to be implemented, recently. What we have from reports is that it works like the yuan, paper money. Only you pay for everything through your cell phone or through the app”, says Gabriel Câmara, advisor iHub Investimentos, an office linked to XP Investimentos.
According to the latest data from CNNIC (China Internet Network Information Center), more than one billion Chinese people have internet access and this represents 71.6% of the country’s population. “In the most distant villages, the Chinese use smartphones and QR Codes. Therefore, the implementation of a digital asset was very easy”, he adds.
Another country that has also made great progress on this issue is Sweden, where digital payments are made through an app called Swish. The e-krona digital currency will be in the testing phase until November 2022. Its full deployment, however, could take until 2026.
Is Pix the first step towards Brazilian digital currency?
Just as the Swish app ended up virtually replacing cash transactions in Sweden, Pix has had a similar effect in Brazil. For specialists, it is a first test for the implementation of a digital real.
“Pix came to facilitate the exchange of money. Since 2015, Brazilians began to be heavily digitized, applications began to have heavy investment and digital banks emerged. What was not there in that period? Ease of transition of money”, he says Chamber. “Pix came to facilitate what was already visible that was a difficulty for us and is a first step in what would be the digital real.”
For Farto, Pix is an embryo of our CDBC [moeda digital]. “If you stop to evaluate it, in practice it is already a digital real. In theory, you could today replace our entire monetary base with Pix.”
However, the ease of technology poses new challenges to the Central Bank. And one of the most important is dealing with data and system protection involved in digital currencies. In January of this year, for example, 160,000 Pix keys were leaked.
“As you centralize transactions, you have a target on your back. You end up receiving a series of hacker attacks, in an attempt to bring down the system. Either by ideology or with the intention of stealing resources”, Farto emphasizes.
Brazil (not) connected
Like the population of China, not all Brazilians have access to the internet and cell phones. According to research promoted by Cetic.br and CGI.br, the country has 152 million people (or 81%) with internet access. Therefore, 19% still do not have access.
The arrival of the 5G network and all the obligations to make operators bring more connectivity to regions that still do not have stable internet appear as hope for this scenario of inequality to change.
Another obstacle, partially resolved, is the unbanking of the Brazilian population. According to a study by Instituto Locomotiva, 21% of adults (34 million) do not have a bank account or have not used it for more than a month. This number is only lower because the payment of emergency aid reduced the total number of unbanked in the country by 73%.
“In addition, many people have a culture of physical money. Especially older people, who had checkbooks, kept money in their mattress. Perhaps, for this older population, it is a little more difficult to disseminate the digital real. But, over time, this barrier must be overcome”, believes Nicolas Farto.
Despite all these issues, Gabriel Câmara calculates that by the end of this decade we will be seeing the beginning of the implementation of the digital real in Brazil. “I believe that all of our problems will not be solved until 2030, but they will have subsided,” he says.
The implementation of a digital currency aims to attract a market that is increasingly interested in cryptocurrencies and also to prevent governments from having more control over monetary policy, reinforce the interviewees.
“If the Central Banks have not done anything to compete with this technology, they will be left behind. So, that puts a little incentive for the implementation of the CBDs“, says Farto.
