In a recent article, Nobel laureate in Economics, Paul Krugman, poses an intriguing question: Has Brazil invented the future of money with its instant payment system, Pix? Krugman’s analysis suggests that Brazil’s innovative approach to digital transactions might be setting a precedent for Central Bank Digital Currencies (CBDCs) worldwide.
Krugman points out that Brazil is already on the path to creating its own CBDC, known as “Drex.” The journey began with the launch of Pix in 2020, a digital payment system managed by Brazil’s Central Bank. This system, he notes, has achieved a level of popularity that far surpasses similar platforms in other countries.
As companies like Visa and Mastercard are censoring the internet by refusing to process payments for certain online content, Pix offers a way around this. Because Pix is run by Brazil’s Central Bank and not private companies, it doesn’t participate in this kind of censorship.
What is PIX?
Pix is Brazil’s instant payment system, launched by the Central Bank of Brazil in November 2020. It allows users to transfer money between accounts almost instantly, typically within a few seconds, regardless of the time of day or day of the week. The service is available 24/7 and can be accessed through a user’s mobile banking app by scanning a QR code or entering a recipient’s key information, such as their phone number, email, or CPF (Brazil’s individual taxpayer registry identification). Pix has been designed to be user-friendly and free for personal use, which has contributed to its rapid adoption across the country.
The system has revolutionized financial transactions in Brazil by offering a convenient, secure, and low-cost alternative to traditional banking methods like checks, credit cards, and wire transfers. Businesses also benefit from low transaction fees compared to credit and debit cards. Pix’s success has made it a significant part of daily life in Brazil, with millions of transactions occurring daily. Its popularity has sparked international interest, including discussions about the potential for similar systems elsewhere and considerations for the development of Central Bank Digital Currencies (CBDCs).
Going Global
One of the standout features of Pix is its instantaneous nature. Unlike debit card transactions that can take up to two days to clear, or credit cards which can take an astounding 28 days, Pix transfers are completed in a mere three seconds. Krugman also emphasizes the low transaction costs.
“Pix transactions are free for individuals and cost businesses and merchants just 0.33% of the transaction value, compared to 1.13% for debit cards and 2.34% for credit cards,”
Despite former President Donald Trump’s criticism, Brazil’s Pix payment system continues to expand globally. A significant partnership between U.S. payment company Verifone and Brazilian PagBrasil is bringing Pix to the American market on a large scale. This collaboration enables U.S. retailers to activate Pix on their payment terminals, offering it as an option to Brazilian tourists. The process is straightforward: retailers enter the purchase amount in dollars, and a QR code is generated for the Pix payment. Brazilian consumers scan the QR code using their bank app, see the converted amount in reais (including a 3.5% IOF tax), and confirm the transaction, which is then instantly approved and credited to the seller’s account.
Verifone, a giant in the U.S. payment processing industry handling over $8 trillion annually, anticipates strong adoption by American merchants due to its lower cost compared to traditional credit card transactions. The system is seen as a game-changer for retailers in tourist hotspots like Florida and New York. Pix has already made inroads in Portugal and Argentina, and inspired Colombia’s new instant payment system, Bre-B. This global spread highlights Pix’s potential as a model for future digital payment solutions.
U.S. needs a moment
Krugman concludes, however, that while other nations might learn from Brazil’s success in developing a robust digital payment system, the United States seems destined to lag behind, trapped by vested interests and a misplaced faith in cryptographic solutions.
In the end, Krugman’s article serves as a reminder of the importance of innovation in the financial sector, and how crucial it is to consider the role of central banks in providing accessible, efficient, and equitable digital payment solutions. While Brazil leads the way, it remains to be seen whether other nations will follow suit, or if they will remain shackled by the very interests and ideologies that Krugman critiques.
Sources: CNN
