The Central Bank of Brazil (BCB) has announced the selection of 13 subjects for the second phase of the Central Bank Digital Currency (CBDC) pilot, known as Drex. This phase will focus on testing financial services through smart contracts managed by third-party participants.
From a pool of 42 use case proposals, the BCB, in cooperation with the Securities and Exchange Commission (CVM), selected topics covering a range of financial services, including optimizing the foreign exchange market and automobile transactions.
Key global players such as Visa and Santander are expected to play a significant role in this phase. This indicates the growing importance of the pilot both nationally and internationally.
The second phase of the Drex pilot includes a diverse group of participants, consisting of 16 consortiums or companies that will test and develop the necessary resources to operate the platform. Visa, in cooperation with XP and Nubank, will focus on optimizing the foreign exchange market. This is a strategic move to streamline cross-border transactions using the CBDC infrastructure.
Santander, on the other hand, intends to explore the potential of CBDCs in auto transactions and will also work on a project related to credit transactions and decarbonization, in line with global sustainability goals.
The BCB has divided 13 selected topics between itself and CVM, with the central bank overseeing 11 topics and the securities regulator overseeing two. The topics cover a variety of financial applications, from credit transactions and trade finance to real estate transactions and agribusiness assets.
For example, topics such as “Credit Collateralized in CDB” will include large banks such as Bank of Brazil, Bradesco and Itaú, while consortia including BB, Caixa and SFCoop will study “Real Estate Transactions.”
The call for proposals will reopen in Q3 2024.
As the Drex pilot moves into its second phase, the focus will be on improving the interaction between privacy solutions and the deployment of financial services through smart contracts.
Each selected topic will operate within dedicated debate environments where regulators and participants will work together to refine governance models and strategies for integrating these services into the broader financial system.
“In the third quarter of 2024, the BCB will open a call for new applications from entities interested in participating in the Drex pilot. Selected entities must test the implementation of smart contracts by the end of the first half of 2025.” This move is aimed at broadening participation and testing the full implementation of smart contracts by the end of the first half of 2025.
The BCB’s commitment is also evident in its strategic collaboration with key industry players and regulators.
While there is much speculation about what the CBDC wants to do, this phase of the Drex pilot represents a significant step toward realizing the potential of digital currencies to increase financial inclusion and operational efficiency in the Brazilian financial system.
Remarkably, earlier this year the central bank unveiled a multi-phased plan to regulate cryptocurrency service providers and virtual assets, preparing the ground for cryptocurrency adoption in the country.
However, it aims to finalize the regulatory proposals by the end of this year, and we will have to predict that this will happen at any point this year.
