Central banks and innovation: Comparing the U.S. and Brazilian approaches
Panelists: Marcus Paulus Rosa, Co-chair of the Legal Subgroup in the Tokenization Working Group, Banco Central do Brasil; and James P. Bergin, Partner, Arnold & Porter and former Acting General Counsel and Chief of Staff, Federal Reserve Bank of New York.
Moderators: Carlos Mauricio Mirandola, General Counsel, QR Capital and Partner, CMSquare Investments; and Felipe Hanszmann, Partner, Vieira Rezende Advogados
Presenter: Thiago Gramari, Director, BizHub
Marcus and Jim will discuss, compare and contrast the approaches that the Banco Central do Brasil and the U.S. Federal Reserve have taken to innovation in the financial sector and where it is likely to lead in the future. Jim, until recently the Acting General Counsel of the New York Fed, will discuss how the Federal Reserve has reacted to financial innovation in each of its three main missions (supervision, payments and monetary policy), and how that fits within the broader arc of the Federal Reserve’s adaptation to changes in the financial sector over time. The Federal Reserve’s approach has been characterized by one policymaker as “innovation with guardrails.” The Federal Reserve, while devoting significant expertise and resources to understanding innovations in the financial sector, has a focus on ensuring that they can co-exist with the Fed’s enduring expectations for safety-and-soundness, financial stability, consumer protection and compliance with law. The Brazilian central bank, by contrast, has renewed its approach to its classical tasks related to monetary policy and the supervision of the financial system in order to deal with the challenges posed by financial innovations. Since 2016, Banco Central do Brasil has implemented a strategic work, currently know as Agenda BC#, that focuses on tackling structural issues of the Brazilian financial system through technological innovation, enhancement of banking regulation, and promotion of efficiency and competitiveness in the financial and payment systems. Under this strategic agenda, two prominent innovations were implemented in Brazil: Pix, the Brazilian instant payment system, and Open Finance. More recently, Banco Central do Brasil has dedicated efforts to start issuing the Brazilian sovereign currency in digital format. It has published the guidelines for the issuance of the digital Brazilian currency (a wholesale central bank digital currency, known as Drex) and established the directives of its Pilot-Project, to be concluded in late 2024. Drex Platform has the potential to be a Distributed Ledger Technology (DLT) ecosystem in the near future, in which regulated financial intermediaries will convert balances of demand deposits and electronic money into Drex (issuing tokenized deposits of the CBDC). This can foster even more financial innovations by incorporating the idea of “programmable money” in the regulated financial and payment systems.
In addition, Marcus and Jim will also discuss the work of the Bank for International Settlements’ innovation hub, and how it is seeking to lead in fields of technology that are relevant to central banks, such as central bank digital currency.