The Central Bank of Brazil’s decision to exclude crypto-related companies from their central bank digital currency (CBDC) pilot has raised eyebrows among the crypto and fintech community. Announced earlier this month, the Brazilian institution seeks to collaborate with registered and regulated finance or fintech providers. However, given that cryptocurrency firms do not fall under the realm of regulation in Brazil, these companies are unable to apply for the pilot, according to local media outlet Livecoins.
The circumstances have led to criticisms and questions surrounding the bank’s apparent favoritism or bias towards traditional financial institutions. As cryptocurrency platforms remain on the sidelines, only banks and a few other regulated entities can participate in what the media outlet called a “friends of the king” scenario.
Despite this setback for crypto enthusiasts and companies in Brazil, the Central Bank’s CBDC plan, slated for debut later this year, seems to carry on unimpeded. The institution has expressed that its CBDC will be designed to foster domestic businesses and startups. The bank also requires involvement from firms with a deep understanding of the Ethereum Virtual Machine (EVM) and experience in distributed ledger technology (DLT).
It is of note that many cryptocurrency companies possess extensive expertise in EVM and DLT, as these technologies underpin numerous blockchain networks, including the popular Ethereum protocol. However, their exclusion from the pilot project seems to suppress potential innovation and collaboration between the emerging and established financial systems.
The Brazilian Central Bank will ultimately select ten companies to work alongside them in the digital real project, testing transactions involving the issuance, redemption, or transfer of financial assets. The deadline for applications is May 12, marking a pivotal moment in the development of Brazil’s CBDC.
While some may see the exclusion of cryptocurrency firms as a necessary precaution due to their unregulated status, others argue that the Central Bank of Brazil missed an opportunity to harness innovative insights from a rapidly growing sector. The decision may significantly impact the blockchain and cryptocurrency landscape in Brazil and its future interactions with the broader financial ecosystem. Ideally, this critical juncture in the world of CBDCs would have encouraged collaboration and synergy between traditional financial institutions and the emerging digital asset market, ultimately leading to a better understanding and integration of digital currencies in the global financial landscape.