Chile's Central Bank Eyes CBDC to Solve DLT Settlement Riddle

Chile’s central bank has announced plans to advance research on a potential wholesale central bank digital currency (CBDC), drawing inspiration from Brazil’s Drex project. While the initiative is still exploratory, the Central Bank of Chile emphasized that the project is not a commitment to issue a CBDC but rather a step toward gaining practical experience in the technology. The proposed CBDC would focus on facilitating the settlement of tokenized assets, particularly in decentralized ledger technology (DLT) environments, such as those used for issuing government securities. This would require synchronization between the central bank’s systems and external DLT platforms, a challenge that Chile aims to address through a Proof of Concept (PoC) project.

The project, outlined by Central Bank Governor Rosanna Costa during an event in the UK, would simulate the transfer of tokenized assets between market participants on a blockchain network using the CBDC as a settlement medium. Costa noted that the initiative aims to identify technical and operational gaps and enhance the central bank’s internal capabilities. This approach aligns with global trends, as over 93% of central banks are exploring CBDCs, according to a 2022 Bank for International Settlements (BIS) survey. The Chilean effort is also consistent with the broader goal of strengthening financial systems against emerging technologies while ensuring stability and resilience.

While Chile’s CBDC would not directly impact the general public—whose main currency remains the Chilean Peso—it reflects the growing recognition of CBDCs as a tool for improving financial infrastructure. The Central Bank of Chile has already taken steps toward regulating digital assets, including stablecoins, through its 2023 Fintech Law. This law grants the central bank authority over prudential aspects of stablecoins issued by local entities. However, the requirement for stablecoin issuers to be locally registered poses challenges in regulating global stablecoins such as USDT and USDC, which dominate the market.

Brazil’s Drex project, which serves as a model for Chile’s initiative, is also in its second phase of development. The Brazilian central bank, led by Governor Roberto Campos Neto, is testing the integration of decentralized finance (DeFi) elements into the CBDC to address the so-called “trilemma” of decentralization, privacy, and programmability. Drex, previously known as the Brazilian digital real, is being designed to incorporate tokenization into banks’ balance sheets. The central bank is also advancing its Open Finance platform, which aims to enhance competition and offer users multiple payment options, including CBDCs. The first phase of Drex’s pilot focused on decentralization, while the second phase explores digital asset transactions, including liquidity pools for government bonds and international trade finance.

In parallel, emerging economies are increasingly viewing CBDCs as a means to boost financial inclusion. A recent study published in the Journal of Macroeconomics found that retail CBDCs have the potential to incentivize unbanked populations to open bank accounts, thereby increasing the supply of deposits and enhancing overall lending in the economy. The paper highlights that in low-income and emerging economies—where a large share of the population remains unbanked—CBDCs can serve as a catalyst for financial inclusion, provided they are designed to offer anonymity, efficiency, and potentially higher returns compared to traditional deposits. This aligns with the broader objectives of several central banks, including those in Latin America, which see CBDCs as a tool to strengthen monetary sovereignty and modernize financial systems.

As global central banks continue to advance their CBDC research, challenges remain, particularly around privacy, interoperability, and regulatory frameworks. For instance, both the European Central Bank and the Bank of England are examining privacy concerns and the appropriate limits for CBDC holdings to prevent disintermediation of traditional banking systems. Similarly, while most central banks have not yet committed to a specific timeline for issuing retail CBDCs, the growing momentum suggests that 2025 may mark a period of significant progress, with several countries finalizing design parameters and conducting pilot tests.

Overall, Chile’s interest in a wholesale CBDC reflects a broader global shift toward digital financial infrastructure. By drawing lessons from Brazil’s Drex project and aligning with global best practices, Chile aims to position itself at the forefront of CBDC innovation while ensuring the stability and resilience of its financial system.