The Brazilian Real is taking another form: a digital one. Drex is a Central Bank Digital Currency (CBDC) currently in development by the Brazilian Central Bank (BCB). It should be released in 2025, although there isn’t an exact date by the time of this writing.
In any case, Drex is part of a global trend that aims to enhance payment systems and offer more financial products for hundreds of millions of people in an integrated way. The Brazilian banking system is worldwidely known for its robust, tech-savvy infrastructure: 80% of all transactions are made through digital means, such as smartphones and personal computers, according to Público Brasil.
This digital version of the fiat currency will embrace interoperability between centralized and decentralized ecosystems, facilitating the access to financial services for those who still don’t have a bank account.
A step forward to a cross-border financial system
One of the main objectives of central banks worldwide is to build an ecosystem that favors legal interoperability. In this sense, Drex can play an important role throughout this process of financial integration.
Every technical and legal point can be aligned to both national and international standards, such as the Markets in Crypto-Assets (MiCA), which covers up to 27 members of the European Union (EU). This could make the lives of entrepreneurs much easier in the long run.
Costs regarding transfer taxes can be drastically reduced thanks to the blockchain technology, since most of them require less resources to run properly. In its pilot phase, Drex was running through Besu, a company focused on offering Distributed Ledger Technology (DLT) for Ethereum – the main choice for blockchain-based financial solutions.
Therefore, the Brazilian digital asset is being developed to interoperate not only with other digital banking systems worldwide but also with DeFi ecosystems. It is not an isolated financial solution, focused solely on domestic territory: it’s a technology designed thinking about the innovation brought by the Web 3.0 universe in mind.
Drex: main highlights for the globe
Here are three main reasons why the BCB should be considered as a valid inspiration throughout the global financial system:
Financial inclusion for the masses
BCB’s main goal is to provide access to money for those who still don’t have a bank account. Since there are more smartphones than people in the world, the accessibility could be guaranteed even for those who live in remote areas.
Users could go “full-crypto” if they want, as long as they have a valid and configured wallet address to receive and send funds. The Central Bank will provide specific licences for financial institutions so they will be able to create wallet addresses for Drex users, making the process simpler than opening a bank account.
This simplification process is certainly welcome, as it will encourage internet providers to lower costs and improve signal coverage in remote areas.
International cooperation
Financial crimes such as border evasion and money laundering are some of the hottest topics for governments. The presence of CBDCs could potentially mitigate this kind of problem thanks to the blockchain architecture.
Suspicious transactions and specific wallets can be monitored real-time to make the authorities aware of bad actors before they take another step forward. There are lots of new users that don’t know exactly how things work in the blockchain ecosystem: that said, some kind of continuous observation is in order to maintain the integrity of both traditional and decentralized environments.
Governments will be able to cross-reference information with each other in order to curb financial crimes, optimally and transparently protecting the interests of all parties involved.
Risk management
Any CBDC should prioritize security and stability. The BCB is making strategic partnerships with private companies, such as traditional banks, fintechs, and other financial institutions to make sure that Drex’s parity with Brazilian Real remains strong and reliable at all times.
Financial Service Providers (FSP) will be authorized by the Central Bank to ensure that all processes are being executed properly. This allows competent authorities to take action to safeguard the health of the national financial system, if necessary.
Inflation control and the issuance of new digital assets become largely automated. This is because smart contract mechanisms allow for the rapid diagnosis and resolution of potentially negative events, eliminating the need for unnecessary bureaucracy.
Drex as a modern banking model
Partnerships and mutual collaboration are some of the key features for an integrated and sustainable economy. Brazil is walking through that road to make sure that national interests are aligned with what is being globally built.
Countries such as Greece, Portugal and Ireland suffered during the 2008’s financial crisis. Their financial systems couldn’t handle the sovereign debt. As a result, unemployment, political instability and eroded trust in both financial and political institutions took place. The Brazilian government seems to understand that and is making an effort to prevent it.
