The virtual version of the real took another step towards implementation on Monday (7). The Central Bank (BC) announced that the Brazilian digital currency will be called Drex.
With the platform in the testing phase since March and the first simulated operations scheduled for September, the digital real aims to expand business possibilities and stimulate financial inclusion. All in a secure environment with minimal chances of fraud.
The idea, according to the BC, is for Drex to be used in wholesale for financial services, functioning like a Pix – an instant transfer system in operation since 2020 – for large amounts and different purposes. Consumers will need to convert reais into Drex to send money and do the opposite to receive money.
What is Drex?
Also called the digital real, Drex will function as an electronic version of cash, utilizing blockchain technology, the same as cryptocurrencies. Classified under the Central Bank Digital Currency (CBDC) category, the tool will have its value guaranteed by the monetary authority. Each R$ 1 will be equivalent to 1 Drex.
What is the difference compared to other cryptocurrencies?
Cryptocurrencies obey the law of supply and demand, with value fluctuating daily, like a company’s stock. Without guarantees from central banks and governments, cryptocurrency prices can vary significantly, potentially causing substantial value losses from one day to the next.
Linked to official currencies, the CBDC fluctuates according to the daily exchange rate, determined by the fundamentals and economic policies of each country. However, the exchange rate only represents a difference for transactions between different countries. For internal transactions, Drex will be worth the same as cash.
What is the difference between Drex and Pix?
Although it can be considered a cousin of Pix, as it allows instant payments between different financial institutions, Drex will operate differently. In Pix, the transfer occurs in reais and follows security limits imposed by the BC and financial institutions. In Drex, the transfer will use blockchain technology, the same as cryptocurrencies. This will allow transactions with larger amounts.
What services can be executed with Drex?
General financial services, such as transfers, payments, and even the purchase of public securities. Consortia authorized by the Central Bank may develop more possibilities, such as instant payment of home, vehicle, and even social benefit installments, as announced by the consortium formed by Caixa Econômica Federal, Microsoft Brazil, and the Elo credit card brand.
Drex will allow the use of smart contracts. In the case of selling a vehicle, there would be no discussion about whether the buyer should deposit before receiving the asset or whether the seller should transfer the documents before receiving the money. The entire process will be done instantly through an automated contract, reducing costs associated with bureaucracy, intermediaries, and speeding up operations.
How will access to Drex work?
Expected to reach consumers by the end of 2024 or early 2025, Drex will only function as a wholesale currency, exchanged between financial institutions. Customers will conduct operations with the digital currency but will not have direct access to it, operating through virtual wallets.
The process will occur as follows. First, the customer (individual or company) must deposit the desired amount in reais into a virtual wallet, which will convert the physical currency into Drex at the rate of R$ 1 for 1 Drex. These wallets will be operated by banks, fintechs, cooperatives, brokers, and other financial institutions, under the supervision of the BC. New types of companies with virtual wallets may be created as technology evolves.
After tokenization (conversion of real asset into digital asset), the customer will be able to transfer the digital currency through blockchain technology. It will be up to the recipient to convert Drex into reais and make the withdrawal.
Source: Agência Brasil
Original text: https://bit.ly/45l6T4c