“It was the mark of a barbarian to destroy something one could not understand.” – Arthur C. Clarke
IN THIS NEWSLETTER
CBDCs: What Brazil can teach the EU
Term of the day: Section 301
Macro: US CPI
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WHAT I’M WATCHING
Hello everyone! I hope you’re all taking care of yourselves. A heavy day today, for those that remember… After 25 years, it still feels recent.
If you missed yesterday’s email, check out the first episode of a new video/podcast series: Stablecoins Around the World.
CBDCs: What Brazil can teach the EU
While the European Central Bank is spending considerable political and monetary capital on developing a digital euro that most of us don’t want, Brazil has the Pix system.
Created and operated by the central bank (Banco Central do Brasil, or BCB), it enables near-instant 24/7 payments by connecting bank accounts behind the interface. There is no Pix app – rather, Pix powers commercial bank apps and digital wallets. Recipients are identified by their Pix key which is the same throughout the system and means senders don’t have to type in full banking details. Transfers between individuals are free, and relatively low for businesses.
Although it launched just six years ago, Pix today has more than 170 million users, roughly 80% of the total population. This past December, almost 90% of Brazilian adults used Pix at least once. Cash use is dropping sharply, even though Pix also facilitates the withdrawal of cash without a card via participating merchants and ATMs. By all accounts, it has been phenomenally successful.
And it is popular: there appears to be relatively little concern over central bank control and the possibility that the system’s ubiquity creates a dependency. Rather, concern is more about protecting access. There is currently a constitutional amendment under consideration by the Brazilian parliament that would give the BCB exclusive power to regulate and operate Pix, would ban its transfer to another private or public entity, and would enshrine free use for individuals.
Here is what Pix is not: it is not a CBDC, despite Paul Krugman’s insistence to the contrary (bewildering, really). Pix is a payments rail. It does not change the nature of money, nor the relationship between the central bank and consumers, nor the relationship between consumer banks and their clients. It moves digital reals, but it does not create them nor represent them.
And yet, it has managed to reduce Brazil’s dependence on US platforms while broadening financial inclusion.
Yes, those are the very same targets espoused by the European Central Bank (ECB) in its push for a CBDC. It has positioned its digital euro project as the only way to defend European interests against US hegemony in the form of payment platform dominance (Visa, Mastercard, etc.) and the likely popularity of dollar stablecoins.
Brazil shows that there are less intrusive, more popular ways to do so.
Brazil’s CBDC
It also highlights the CBDC trilemma: a trade-off between efficiency, programmability and privacy.
