Brazil’s CBDC Could Reportedly Allow Government to Freeze or Manipulate Accounts

Brazil has been developing a CBDC for some time now. If all goes according to plan, Digital Realm will be launched sometime in 2024.

Once launched, it will support retail payments for anyone willing to use it, backing up payments with funds in users’ bank accounts.

Planning ahead

However, the Brazilian CBDC will not interfere with other payment methods prevalent in Brazil, such as PIX.

According to a Brazilian government spokesperson, the decision to pursue the CBDC project was taken to open new avenues for technological improvement. The digital real could potentially reduce the cost of credit and other customer-facing financial products, thereby helping banks reach a wider customer base.

“This can reduce the cost of debt, improving return on investment. There is great potential for new service providers, fintechs, to democratize access to the market and offer new services.

Unfortunately, the current iteration of the Brazilian CBDC includes some interesting code that could allow the government to directly interfere with users’ wallets.

potential invasion of privacy

Although there is no shortage of CBDC proponents, many in the tech space have long been skeptical of government-backed digital currencies. According to critics, CBDCs remove the beneficial aspects of decentralization and anonymity from cryptocurrencies, essentially turning them into the same abstract figure shown in your bank balance.

Digital currencies would therefore be subject to fractional lending and similar practices, with no real incentive for consumers to use them.

However, an over-reaching government would probably be very interested in technology that would keep a permanent and immutable list of financial transactions.

5/ In addition to tasks such as “minting” actual digital tokens and enabling/disabling target accounts as described in the document, a developer found other tasks by applying reverse engineering techniques to the content provided by the Central Bank.

— Vini Barbosa (@vinibarbosabr) 10 July 2023

after reviewing source code For Digital Real, full-stack developer Pedro Magalhães submitted his test results on linkedin.

According to Magalhães, the source code includes some interesting functions that will allow the government to directly freeze and unfreeze accounts, transfer, create and burn CBDC tokens to someone else’s account, and transfer assets on behalf of a user.

While these functions may only be used to help banks provide loans and other financial products to customers or track down financial crime, there are even more sinister possibilities.

At the moment, there has been no comment on the matter from any representative of the Brazilian government.