The DREX will make its debut on December 4 and is expected to be operational at the beginning of 2024. The monetary authority of Brazil has reported a significant increase in cryptocurrency imports in the country, with a 44.2% rise in the first eight months of the current year. Throughout 2023, transactions in cryptocurrencies made by Brazilian citizens reached the sum of 7.4 billion dollars. In this context, the Central Bank of Brazil trusts that its own digital currency, "DREX", can mitigate the growing impact of cryptocurrencies on the national economy.
Roberto Campos, in a meeting with the Brazilian Congress focused on monetary policy and inflation, shared his concern regarding the increase in cryptocurrency usage, both for everyday transactions and as investments. Campos highlighted a trend of these digital currencies replacing traditional currencies in the country and expressed his worry about their possible link to illicit activities and tax evasion. Campos' hope lies in the "DREX", planned to be launched at the end of 2024, to balance the influence of cryptocurrencies in Brazil.
Despite these initiatives, the popularity of cryptocurrencies in Latin America continues to rise, driven by the devaluation of local currencies and inflation, as well as a certain skepticism towards the digital currencies issued by central banks.
Criticism and Fear of DREX
The "DREX" is not immune to these criticisms, as its design as a "controllable" digital currency has sparked debate over its ability to freeze funds or modify balances.
Recently, the Central Bank of Brazil announced a significant advancement with the successful completion of an interbank transfer using the "DREX" on the Hyperledger Besu blockchain network, conducted by Italú Unibanco and BTG Pactual. However, some project partners have faced technical challenges, especially in relation to the bandwidth needed to install network nodes.
The official tests of the "DREX" are scheduled to begin on December 4, with expectations to obtain preliminary results by March 2024. Among the main consortia involved in the development of Brazil's CBDC are Bradesco, Nubank, Inter, Microsoft, Santander, Unibanco, Visa, BTG, and Banco do Brasil.
What is the Danger of CBDCs?
State-issued cryptocurrencies, known as Central Bank Digital Currencies (CBDCs), significantly differ from decentralized cryptocurrencies like Bitcoin or Ethereum. These currencies are centralized and are issued and controlled by a monetary authority, such as a central bank, which means the issuing entity has significant control over the currency. Due to their centralized nature, a central bank or government entity could have the ability to freeze accounts or funds similarly to how banks can operate with traditional bank accounts. In theory, a central bank could have the ability to modify the balances of CBDCs, which could include the implementation of monetary policies like negative interest rates directly on digital accounts. CBDCs could be designed to allow more thorough tracking and supervision of transactions, which might include the ability to trace the flow of money in the economy in more detail. Although CBDCs might offer certain advantages in terms of efficiency and security, they also raise significant concerns regarding privacy and state control over personal finances. The exact implementation of a CBDC will depend on the decisions and regulations of the central bank or the government that issues it, which might include decisions about how much control and supervision to exert over transactions and balances. In summary, CBDCs offer governments and central banks a degree of control and supervision that is not possible with decentralized cryptocurrencies. However, this control also raises important questions about privacy and financial autonomy.
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