In a recent interview, Catherine Gu, Visa’s head of CBDCs and protocols, revealed that the firm developed a platform to help Brazilian farmers in negotiating contracts better. However, she adds this is just the “tip of the iceberg” meaning a small part of a much bigger problem for central bank digital currencies (CBDCs).
Recently, Visa partnered with Microsoft, as well as tokenization platform Agro Token and software company Sinqia, to explore the use case of Brazil’s digital Real in the agricultural sector.
It developed an agriculture-focused use case as part of the latest LIFT Challenge — a call for proposals for minimally viable products that can benefit the country’s financial system and the broader population. Gu said:
We wanted to show programmability and what smart contracts [can] deliver. So say tomorrow, we go to a different central bank and look at a completely different part of that economy and try to bring things on-chain.
Reportedly, the value of Brazil’s agricultural exports in 2021 reached $125 billion as per the US Department of Agriculture. Pointing this out, Gu said that the prevalence of farming in the country’s economy made it a good place to look for a CBDC use case.
She said that farmers in the country often have to sell their future receivables at a discounted rate to receive money immediately, which results in a portion of the sale being lost to the entity providing financing.
Through its programmable platform, Visa seeks to provide farmers better access to a global pool of investors for financing in an effort to improve price discovery for their goods. Specifically, it facilitates farmers to auction off a tokenized contract on a permissioned version of the Ethereum blockchain.
For this, Visa joined hands with Agro Token to help the company allow farmers to turn existing Brazilian legal documents into an on-chain tradeable NFT.
Gu clarified that most CBDC pilots are being done in a permissioned way highlighting that Visa wanted to demonstrate how a set of private actors could come together to set up a node. She said:
But fundamentally, I would say Visa is agnostic to the underlying network, so that should be the choice of the central bank itself or the financial institution. Our goal is to focus on the use cases and the smart contract programmability on top of that.
Further, Gu stated that the agency is just playing its role by keeping central banks up to date with innovation. She added that the company is well versed with smart contracts however that “does not mean that the future of CBDCs have to be built on them but you need to be able to understand the possible benefits and tradeoffs to make the right design choices down the road.”
In January, Alfred Kelly, CEO of Visa, said that the company is proactively working towards digital assets. The CEO briefed the media that the firm is currently working on a number of central bank digital currencies (CBDCs) and stablecoin initiatives.
CBDCs have become increasingly famous with countries looking up to them for enhancing efficiency and saving costs. International Monetary Fund Managing Director Kristalina Georgieva said that more than 100 countries are in the midst of studying CBDCs or looking into ways they could potentially implement them.
As the concept of CBDCs grows, global financial institutions have announced their initiatives to facilitate innovation. Recently, the Society for Worldwide Interbank Financial Telecommunication (SWIFT) tested how different CBDCs can interoperate through an API-based CBDC connector, using two different blockchain networks and existing fiat-based payment systems.