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If until recently digital currencies were a subject restricted to the nerd universe, IT professionals or even researchers at universities, things have recently changed. The topic has gone beyond these groups and central banks around the world have been working tirelessly to make their own digital currencies viable and Brazil is no exception.
In our case, another step was taken towards having our digital version of Real – Drex!
It is natural and understandable that people have many doubts about it and that is the purpose of today’s post, that is, to answer the main questions and clarify what is already known about Drex.
What is Drex?
Drex is a set of technologies applied to the currency that we are used to using on a daily basis – the Real – producing its equivalent in the digital environment and which until then, we only knew as “Real Digital”, but with the official announcement of the Central Bank of Brazil (BCB), on August 7, 2023, is renamed Drex.
The acronym is the result of the union of different words. The “D” and “R” refer to Digital and Real respectively. The “E” corresponds to Electronic, as in “e-commerce” or “e-mail” and finally, the “X” conveys the idea of modernity and connection, but is also usually associated with eXchange ( exchange rate), similar to its use in the other service created by the BCB, Pix.
In addition to the operations that we are already accustomed to routinely in the banks where we are account holders, with Drex it will be possible to perform others that, before its creation, involved requirements that not everyone fulfills or require bureaucracy and even specific and necessary knowledge, such as, for example, a remittance of value abroad or international payments.
But also include technologies that bring other types of benefits, such as the security of the blockchain environment, but without having to worry about possible disadvantages, such as an unregulated environment and without the type of trust, such as that associated with currencies fiduciary (it is said of what or who is dependent on trust) and which is a consequence of its issuance by a central bank.
In other words, unlike other digital currencies with which we are “accustomed”, such as cryptocurrencies, such as bitcoin, which presuppose decentralization, lack of regulation and high volatility/instability, the digital real is governed by the same set of variables as physical currency that anyone uses, or if you prefer, is linked to the country’s monetary and economic policy.
Seen in yet another way, the Drex follows the same susceptibilities as the real regarding exchange rate and inflation, for example, and, therefore, must also “function” as the country’s official currency, which is guaranteed by law.
Understanding Drex with 9 questions and answers
As we have information about Drex, it is common to find in the associated answers a series of terminologies that may raise other questions. Therefore, the idea is to answer not just about, but other related aspects.
1. Why was Drex created?
The intention and need to create a Brazilian digital currency has been a topic of discussion for years, but the working group to study and implement its issuance was established in August 2020 at the BCB.
Still in 2022, Fábio Araújo from the Central Bank commented that: “There will come a time when we will have the development of tokenization of financial assets. And for you to buy a digitized token, you will have to have a currency that is also digital”.
In other words, digital currency is a response to the rapid advancement of digital transformation in the decade, as people access a marketplace and buy anything, being able to pay with a credit card, debit card or Pix, but you don’t have the means to pay with cash, as is done for face-to-face purchases.
But more than that, since Drex is the digital counterpart of Real and, therefore, with several characteristics derived from environmental technologies, it will serve as the most appropriate medium for the many variables of this environment. It makes no sense for the digital medium to evolve in several aspects and in others to remain tied to old methods.
If the appropriate proportions are taken into account, it would be like buying a notebook, but still paying as was done 200 years ago or making an international purchase and sending a payment order by telex.
2. What is tokenization?
There has been a lot of talk about tokenization and tokens in digital media, for this reason, we need to understand what it is about.
Generally, the word token has taken on different meanings depending on the context in which it is used, but in this particular scenario and in short, it is the digital representation of something.
Let us use as an example two situations that already exist in our daily lives – the CRLV-e and the e-Título.
Both the Vehicle Registration and Licensing Certificate (CRLV-e) and the Electoral Title (e-Título) are ways of digitally representing documents that previously only existed in physical form and printed on paper, exclusively issued by the respective public bodies.
They are still issued by the same bodies, but in a different way, under different procedures and even take on a different appearance and method of use than the originals.
The same applies to many portfolios of professional class entities, such as the OAB, for example.
Since digital transformation has changed practically any process, it is natural that tokens are created that fulfill the same function as what they replace in the physical world, but in the digital environment and often with greater versatility and more benefits.
3. What are the advantages of Drex?
There are many benefits that should become more evident at the launch and subsequent disclosure of the Drex operating rules, which are currently still in the testing phase and therefore, there is no way to draw up a definitive and objective list.
However, from what is already known, the idea is that people can take out a loan more easily, have a more accessible investment option, or perhaps easier insurance.
For example, today if someone wants to invest in Tesouro Direto or perhaps in shares, the process is not so easy, accessible and accessible to anyone, as it is normally intermediated by a broker or financial institution.
With the implementation of Drex, this should change, making the acquisition of this financial service – and many others – more practical, faster and transparent.
Another possible example is in the process of buying and selling a vehicle. There is a whole bureaucracy and even a certain impasse. Who does what first? Do we proceed first with the bank transfer or transfer of the document at the notary’s office?
With digital currency and the possibility of linking a smart contract to the operation, the registration of the car document in the buyer’s name occurs at the exact moment the Drex is transferred from the buyer’s digital wallet to the seller, in a single operation. Faster, more practical, safer and more reliable.
Other advantages include a leaner, more intelligent and dynamic financial system in terms of fees, as it will eliminate some intermediaries that are currently necessary.
4. Is Drex cryptocurrency?
No, objectively it will not be like any of the cryptocurrencies we are used to.
There are few things in common with Bitcoin, Ethereum and other cryptocurrencies, other than the fact that they are all digital currencies, such as the use of blockchain to provide security to transactions. However, even the blockchain will be different, in which case it will be private and maintained by the BCB.
Among the most important differences, it is worth highlighting:
- Stability – unlike cryptocurrencies, which are quite volatile and which means they are much more susceptible to large variations, which can cause their prices to fluctuate enormously;
- Parity – 1 Drex will be worth exactly 1 real;
- Mining – there is no mining. The issuance is carried out by the BCB, exactly like the issuance of coins and paper money;
- Physical use – any cryptocurrency needs to be converted, by purchase or sale, into currency (Real, Dollar, Yen, etc.) for physical use. When in operation, the amount existing in the digital wallet can be withdrawn for physical use, as is already done in current accounts;
- Centralization – one of the central concepts of cryptocurrencies is their decentralized character, that is, there is no central entity that determines rules and control. Any problem that may occur in cryptocurrencies, there is no one to complain or turn to. In the case of Drex, this will be the role of the Central Bank.
5. Is Drex safe?
Among the premises on which the development of digital currencies are based, not only in Brazil, but throughout the world, security is one of the main ones, which is why one of the technologies used is blockchain.
When you have a system in which all transactions are recorded and controlled in a central database, you have greater control on the part of the issuer, taking away the autonomy – even if partial – of banks and fintechs, the finance startups that offer digital accounts.
The idea is to reduce the chances of systemic failures, accounting fraud and increase control and regulation of central banks.
Above all, it is necessary to take into account that as a CBDC, it will be used for transactions with equivalent digital currencies from other countries and therefore, security and regulation need to be as good as possible.
6. What is CBDC?
CBDC is an acronym from English, relating to “Central Bank Digital Currencies” and which, if translated into Portuguese, means “central bank digital currencies”.
Therefore, a CBDC, whether Drex or any other, has the function of fiat currency and is currently used in all local transactions and tax payments.
Several central banks around the world are conducting similar initiatives to create their CBDCs, and there are currently only two countries in which digital currencies already “circulate” – Bahamas and Jamaica.
In China, at a more advanced stage than in Brazil, but still being tested, it already has 250 million users.
Among the common characteristics of CBDCs are the requirement for a digital wallet (wallet), through which only the holder of the respective password can move the coins and the possibility of any transactions and access independent of banks and intermediaries, although these may exist optionally.
Due to this last characteristic, the aim is to remove people from the informal sector who, for various reasons, do not have and have never had a bank account.
7. When does Drex go into operation?
The testing phase in Brazil has already started through a pilot with banks, payment institutions and cooperatives, a stage that should extend throughout 2023.
The Central Bank does not disclose a detailed schedule, nor a precise launch date, however it has been estimating that the first services will be available at the end of 2024.
It is important to highlight that a little different from Pix, which is a service, Drex is seen as a platform. This is because it is intended to encompass a series of services.
Therefore, it is expected that when it is launched, only the most basic services will be available, such as transferring amounts between digital wallets, something similar to what already happens with Pix, but in this case, it is about “physical money”.
8. Will Drex have costs?
Yes, there will be fees charged on certain platform services.
However, as the number of intermediaries decreases and even eliminates them completely in some cases, the values should remain below the costs that users currently have.
9. Will I be required to use Drex?
No, Drex is just the digital counterpart of physical money and, therefore, another option for some situations involving monetary values.
It is expected that there will be a free option of 100% of your cash amount in physical currency, as it is today, or 100% in digital currency, or any desirable and/or necessary proportion between the two.
As stated, Drex will not be required for digital transactions that are currently possible by other means. However, as also mentioned, it comes as a way to make it faster, easier and even cheaper.
In a similar way to Pix and with due proportions, it will only be an alternative.
Conclusion
Drex is the name of “Real Digital”, which is being developed by the Central Bank, as a response to the many changes promoted by digital transformation.
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