Brazil’s top banks are gearing up for the launch of a new digital Central Bank Digital Cash/Currency (CBDC) called Drex.
Leading the way, Itaú Unibanco, BTG Pactual, and Santander Brasil are adding more staff and resources.
Roberto Campos Neto, the Central Bank’s president, has backed blockchain technology since 2019. He says this technology will help the financial sector in many ways.
Drex is a platform overseen by the Central Bank. Its main function is to turn financial items like stocks and bonds into digital forms.
This allows for easier and quicker transfers between people and institutions. The banks view Drex as a way to make more money through digital services.
For instance, Itaú recently started a service to keep digital assets safe. It plans to offer this service to its customers soon.
BTG Pactual has its own platform for trading digital currencies called Mynt. The team behind Mynt is growing.
Santander Brasil also created a special team focused on digital assets. Drex is set to launch in 2024, after a test run ending in May of that year.
The timing is good because many people in Brazil already use cryptocurrencies, which are also digital but decentralized and not subject to Central Bank control as CBDCs are.
The number of cryptocurrency users has increased 30 times since 2020.
Brazilian rules for digital assets are also becoming more relaxed. Now, investment funds can put up to 10% of their money into digital currencies.
This change opens doors for new and existing financial products.
Background – Brazil’s Major Banks Get Ready for Digital Real
While digital currencies like Drex have potential, total government control could raise serious concerns.
Control over currency means control over transactions, possibly affecting citizen privacy.
Moreover, combining a centralized digital currency with digital IDs could give the government unprecedented access to personal data.
This creates potential for misuse or excessive surveillance.
Globally, similar concerns have been raised. In China’s case, their digital currency drew worries about state control and privacy violations.
Brazil’s Drex could attract similar apprehensions.
The concentration of financial power with the Central Bank could also limit market competition.
This could stifle innovation in the long run, making the financial system less dynamic.
Though a centralized system ensures more regulated transactions, it leaves out the transparency and decentralization that make cryptocurrencies appealing to many.
Brazil, known for its bureaucratic systems, must also tackle efficiency and corruption risks. A centralized digital currency could either streamline or exacerbate these existing issues.
Additionally, in a country where political instability is not uncommon, total financial control by the government can be risky.
Rapid changes in administration could lead to erratic financial policies.
Lastly, while digital currencies offer many benefits, they also make it easier to implement negative financial controls, like freezes on personal assets, directly affecting the public’s financial freedom.