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'Immature' No Longer: Brazil's Central Bank Is Ramping Up Its Blockchain Work

The Central Bank of Brazil is building with just about every blockchain it can get its hands on.

In a new interview about its plans for the nascent technology, members of the central bank’s blockchain team revealed they are resuming work with R3’s Corda distributed ledger platform, months after ceasing development because the technology was deemed too “immature.”

After the enterprise blockchain consortium launched version 1.0 of Corda in October, the central bank said it’s ready to see if the newest version has what it takes to back up aspects of the country’s financial infrastructure.

And with that, Banco Central do Brasil is now developing proofs-of-concept (PoCs) on four different platforms, trialing ethereum, JPMorgan’s Quorum and Hyperledger Fabric alongside its Corda work.

The PoCs broadly focus on using blockchain to both back-up the central bank’s current real-time gross settlement system (RTGS), called the Brazilian Payment System, as well as better align the organization with the growing momentum for central banks to innovate in an era where blockchain technology is in increasing demand.

Speaking to that trend, the deputy head of the central bank’s IT department, Aristides Andrade Cavalcante Neto, told CoinDesk:

“We are a central bank, and we enjoy a lot of stability. But you have to think change. You have to think in a different business model. So, for us, that’s the most difficult part of this kind of work when we’re talking about innovation.”

Real-time blockchain

While the blockchain team at Brazil’s central bank had considered a number of use cases – including enabling foreign trade in local currencies and an identity management system – as far back as January, it ultimately selected RTGS as its focus, according to the team’s analyst Jose Deodoro De Oliveira Filho.

Instead of being netted periodically, RTGS is used to allow banks to settle their large-value debits immediately as they occur. Because these transactions are relatively infrequent, they have been identified by multiple central banks as a potential use case for blockchain.

Banco Central do Brasil processes 314,ooo transactions per day, moving a total of 839 billion Brazilian reals, or about $255 billion by today’s exchange rate.

In conversation with CoinDesk, De Oliveira elaborated on the decision to focus on the RTGS use case, stating that while the central bank’s current system has been helping commercial banks reconcile accounts for 15 years, they still don’t have a backup system. And they’re interested in whether a blockchain it suitable for the job.

According to De Oliveira, each of the platforms has its own “advantages and problems,” but really only two main obstacles – albeit big ones – remain.

Specifically, the central bank can’t “prove” that implementing a blockchain system would be cheaper than implementing something more traditional, he said. And there are ongoing questions about the privacy of using a shared, distributed ledger.

“If you want privacy you can’t have the other features, and if you want the other features, you can’t have privacy. So, that’s what we’re trying to solve right now,” De Oliveira said.

Out in the open

But while RTGS is the primary focus of the central bank’s blockchain work, it’s also testing a blockchain-based “information exchange.”

Revealed for the first time to CoinDesk, the exchange, called Know Your Citizen (seemingly a play on the regulator-mandated know-your-customer compliance), is powered by Quorom in Microsoft’s Azure cloud. It also uses Truffle, a popular ethereum development framework, to interact with smart contracts.

Details about the project are “kind of a secret right now,” according to De Oliveira, but he said more information should be forthcoming in the “next couple of months.”

Elsewhere, the central bank is increasingly open regarding its blockchain development.

Not only did it introduce its findings at the Central Bank Summit hosted by Ripple in New York last month, but also it has also presented its work to the International Monetary Fund, and will, later this month, appear at Blockchain Summit 2017 in Sao Paulo, Brazil.

As other central banks from all around the world, including Hong Kong, Japan, Canada and Europe, are typically in attendance at these events, Cavalcante Neto framed this openness as a way to workshop ideas with peers, saying:

“It’s very useful, this kind of meeting, to understand the different perspectives from different central banks about the technology.”

Brazilian real image via Shutterstock

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Brazil's Central Bank Considers Blockchain Settlement Prototype

Brazil’s central bank has released a new research paper that details possible use cases for blockchains and distributed ledgers while outlining how various available platforms could be used to test the technology.

The result of a study group initiated by Banco Central do Brasil and published August 28, the report looks at use cases for DLT including identity, local currency and settlement – though, just the latter was ultimately recommended for prototyping.

The objective, however, is not to design a primary settlement platform for the central bank, but to create a “minimal” backup system for funds transfer in the event of a “complete main [settlement system] meltdown.”

The report states:

“In the case of its catastrophic failure, RTGS members would be unable to send (or receive) funds to (from) each other, leading to a complete financial halt. …  In this context, the Alternative System for Transactions Settlement (SALT) is a conceptual system for a contingent solution that would be able to immediately replace core functionalities of the main Brazilian RTGS in case of its full collapse.”

The authors indicate that the design of this system includes a permissioned blockchain network in which financial institutions and the central bank itself are the validating nodes.

They study concludes that, although privacy is a potential issue, DLT “could make possible to create a unique shared view of a large variety of information fed and replicated across institutions.”

In this way, the paper is in line with studies commissioned by other global central banks.

The Bank of England and the Monetary Authority of Singapore, for example, have examined how blockchain could be applied to settlement, though the UK central bank has perhaps gone the farthest to date, reporting its newest settlement system will be “distributed ledger compatible.”

Brazilian currency image via Shutterstock

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