Brazilian Central Bank, Banco Central do Brasil (BCB), has named its upcoming central bank-issued digital currency (CBDC) “DREX”. The cryptocurrency also known as the digital real is scheduled to be launched in early 2024.
Central Bank of Brazil Unveils ‘DREX’
The announcement was made by Fabio Araujo, coordinator of DREX, and Aristides Cavalcante, deputy head of the Central Bank’s information and technology department, during a live broadcast on the BCB’s official YouTube channel.
DREX is an acronym, which Araujo says combines several elements of innovation, where D stands for ‘digital’, R for ‘real’, E for ‘electronic’, and X for ‘transaction’. With its digital currency, the Central Bank aims to go one step further than Pix and boost financial services in Latin America’s largest economy.
Pix is an instant payments platform that was launched by the BCB in 2021 that allows fast and low-cost electronic peer-to-peer cash transfers. PIX uses QR codes that are linked to the customers’ mobile numbers and email addresses, making it easy to make transactions instead of having to type in complex and complicated bank details.
DREX Will Use Distributed Ledger Technology (DLT) to Power Wholesale and Retail CBDC Transactions
According to the central bank, DREX will use distributed ledger technology (DLT) that powers blockchain networks to settle wholesale interbank transactions. Retail access to the digital currency platform will be based on the users’ tokenized bank deposits.
In March, the Central Bank announced that digital real will run on Hypeledger Besu, an Ethereum-based business blockchain framework for both public and private permissioned network use cases. Hyperledger Fabric is powered by DLT.
During a live discussion on the BCB’s YouTube channel, Arajuo emphasized that DREX’s development was aimed at improving Brazialians’ access to financial services. By enabling simple and reliable access to “registered value” through blockchain technology, the bank will able to reduce costs and democratize financial services, added the DREX coordinator.
Similar to Pix, DREX will be operated and managed by the BCB. The central bank will partner with registered financial entities, such as banks, to mint the CBDC. Details of every token created will be recorded in the DLT, which will be maintained by the central bank.
BCB will allow wholesale clients to buy and sell public treasury bonds using the CBDC. Meanwhile, retail clients are designated tokenized DREX, which is a representation of the digital real that is minted and distributed by authorized financial institutions. The transactions will be conducted in a Web3 environment that can initiate the creation, registration, and burning of DREX tokens.
DREX Aims to Democratize Finance, Improve Social Inclusion, and Advance Financial Digitization
Explaining the purposes of the digital real, Araujo said the CBDC can be used by people to easily apply for a loan while having more accessibility to investment options or insurance policies. He also noted that DREX will “bring these financial products into people’s hands”, thus improving the country’s banking sector.
The digital real is currently being tested under a pilot program where the Central Bank is studying its various use cases ahead of its launch in March next year.
During an open workshop session for the digital currency that took place in Brasilia, the deputy head of the Open Market Operations (OMO) Department, Marcus Sucupira, revealed that three products were being tested during the pilot: the CBDC itself, its tokenized form, and implementing the digital real for transactions involving federal public bonds.
Maria Rita Serrano, President of Caixa Economica Federal, says that with the help of DREX, the government will easily be able to distribute social and welfare benefits by transferring the amounts directly to the recipient’s CBDC wallet.
The head of the country’s largest public bank also said the institution is working to make use of digital real to advance financial digitization and bring social inclusion among its customers. Caixa Economica Federal provides its services to 155 million customers in all of Brazil’s municipalities.
In an interview given to local crypto news outlet Portal do Bitcoin, Senator Carlos Portinho stated that the digital currency could be used by state, public, and municipal governments in the country to seek foreign investments.
He also lauded the transparency and oversight benefits offered by digital ledger technology (DLT) that will allow the Central Bank to keep a close watch on the CBDC by constantly tracking its movement.
Will CBDCs Invade Our Privacy?
Last month, the Central Bank published the code for the digital real on its GitHub profile for it to be audited by the public. Upon close inspection of the source code, developers discovered a series of controversial functions within the CBDC’s smart contract.
Apart from being authorized to mint new units of digital currency, the BCB also has the power to freeze user accounts, reduce target balance, and confiscate users’ tokens.
To clarify its position, the Central Bank referred to the Brazilian legislation and judiciary, which has given the entity the right to freeze or confiscate money held in the national financial system (SFN) “in the proper conduct of judicial proceedings”.
The Bank said the functionalities that currently exist in the SFN will be applied to the DREX platform to ensure its compatibility with the country’s legislation.
DREX is expected to be launched in the first quarter of 2024. But labor protests across the country demanding higher wages could impact the project’s development and eventual release.