Hidden feature in Brazilian CBDC allows government to freeze funds

A developer this month discovered a hidden feature in Brazil’s central bank digital currency (CBDC) that allows the government to freeze funds and even adjust balances.

A central bank digital currency (CBDC) is a digital currency issued and governed by a central bank. Brazil’s CBDC, a digital Brazilian real issued and controlled directly by the Central Bank of Brazil, is expected to be rolled out next year.

Critics of CBDC have expressed concern that such currency, at the very least, would lack the anonymity of cash, a fact confirmed by Federal Reserve Chairman Jerome Powell. But it could also open the door for authorities to control the funds of private citizens, a possibility already put forth by International Monetary Fund (IMF) Deputy Managing Director Bo Li in April.

Now a developer has discovered that the ability to freeze a taxpayer’s funds and adjust balances has been built into Brazil’s CBDC. 

Iora Labs Founder Pedro Magalhaes found the feature by reverse engineering the CBDC’s source code after examining API documents posted to GitHub by the central bank. Magalhaes told Decrypt last week that the Central Bank of Brazil was not very responsive to his inquiry about the feature.

“They tend to keep things closed off and usually don’t communicate with non-bankers," he said. “Honestly, they don’t even need to care about public opinion.”

Brazilian journalist Vini Barbosa said the Central Bank of Brazil confirmed Magalhaes’ finding.

“The Central Bank confirmed its plans to keep the functions that allow the monetary authority and authorized entities to freeze user accounts, decrease targeted addresses balances, arrest, and mint new units of the digital currency (CBDC),” he tweeted, adding that freezing funds is legal under Brazilian law.

“The ability to 'freeze or arrest amounts' held in [this system] is protected by current legislation in Brazil, according to the Central Bank," Barbosa continued.