Have you ever heard of DREX? DREX is the digital currency that will be issued by the Central Bank of Brazil. It is a CBDC (Central Bank Digital Currency), following similar initiatives that are taking place around the world. The expectation is that this new “form of money” will be launched in the next two years. DREX will not replace the real thing — it is the real thing, but in digital format. The interesting thing is that DREX is being created with the technology that was born with Bitcoin: the blockchain.
This blockchain technology offers some important features for digital currency: it allows you to track where the currency circulates and program features directly into the currency itself. Considering these characteristics, digital currency could be an ideal technological solution to avoid problems such as those that have recently come to light, in which part of the resources from government social programs are being “spent” on betting sites.
This is because traceability would allow identifying “where” the currency circulates, making it possible to verify whether the resource was used for its original purposes. And, if it is used inappropriately, it would be possible to block it using the code (program) that the digital currency carries. All this, of course, respecting privacy and banking secrecy.
But does this mean that DREX will solve the problems of inappropriate use of social program resources? The answer is no. This is because DREX will be launched for interbank operations, that is, for financial settlement between banks, Payment Institutions (IPs), exchanges, clearings and other entities regulated and authorized to operate by the Central Bank of Brazil and the CVM. Individuals and companies outside the national financial system will not have direct access to DREX in their portfolios.
Drex is the digital version of Real (Image: Sidney de Almeida/ Shutterstock)
Blockchain and Bolsa Família
However, using a currency issued by the Central Bank is not the only way to solve the problem. The BC itself suggests that financial institutions issue their private “currencies”, which are being called “deposit tokens”. They, in turn, can be used for individuals and companies to make payments in their digital transactions.
And how would this be done? For example, in the case of Bolsa Família, it would be like this:
The transfer would be through Caixa Econômica Federal, which would issue the digital currencies that would be transferred to the program’s beneficiaries, in a digital wallet. The beneficiary would pay their bills through this digital wallet. Businesses or people who received these digital currencies could then convert them into reais at Caixa or use them to make their own payments. The code (program) embedded in the currency could “block” the movement of this money to unauthorized digital wallets, such as, for example, a betting website. Through traceability, Caixa could identify any incompatible movements in authorized digital wallets, which could signal their use in attempts to circumvent the system. This, by the way, is already constant monitoring carried out by financial institutions to prevent money laundering, but using much more precise and efficient technology.
The Minister of Finance, Fernando Haddad, guaranteed that the regulation of ‘bets’ will prohibit the use of the Bolsa Família card to place bets. (Image: Federal Senate)
Discover digital social currencies
Another mechanism that complements the deposit token scenario is the creation of digital social currencies. These currencies, issued by community banks or associations, aim to promote local development and financial inclusion in specific communities or regions. Social currencies have restricted circulation and encourage consumption within the community itself, generating a positive impact on the local economy.
Digital social currencies could be used, for example, to distribute benefits from social programs in specific areas, allowing money to circulate and be spent in local establishments, promoting regional development. This mechanism would be especially valuable for more vulnerable communities, which often have little integration with the formal financial system.
Although DREX does not directly solve the problems of inappropriate use of resources from social programs, the technology used (blockchain) can provide security, control and transparency in the use of public resources and assistance to the population in real need. And several projects are already underway for this purpose. In other words, it is technology and innovation for the benefit of society.