Brazil's Central Bank Adjusts Drex CBDC Approach, Prioritizes Traditional Infrastructure

Brazil's central bank, Banco Central do Brasil (BCB), is modifying its approach to the Drex project, the country's central bank digital currency (CBDC). Once a blockchain-heavy project, Drex has shifted focus to more heavily rely on traditional financial infrastructure with the first launch. Despite the risks involved, the BCB is committed to having Drex go live in its entirety by 2026. They’re hitting snags in the plan to comply with Brazil’s stringent financial secrecy and security requirements for blockchain. To this end, the BCB is still very much looking to partner with the private sector. It intends to look at other blockchain applications like private versus public blockchains in later phases.

Privacy Hurdles Prompt Infrastructure Shift

The BCB faced strict challenges in creating privacy solutions that would comply with Brazil’s strict financial secrecy and security requirements. These challenges drove a strategy pivot, prioritizing more conventional infrastructure for Drex’s first phase. To start, the first version of Drex will have no decentralization features.

Sixteen consortia have been evaluating potential Drex use cases since July 2023, contributing to the BCB's understanding of the CBDC's application. The second-phase pilot application of Drex will be open until November 29, 2025. Fabio Araujo, the coordinator of the Drex project, leads the efforts to thread these technological and regulatory needles.

Two-Phased Implementation and Blockchain Exploration

Drex’s implementation is rolled out in two separate phases. The initial phase will be aimed at proving out a workable CBDC with the current traditional financial infrastructure. The second step will iterate and optimize the blockchain-based pieces.

Hyperledger Besu, an Ethereum-compatible blockchain platform, was selected for Drex in 2023. That said, there’s no way to know if Hyperledger Besu will remain the preferred platform going forward as work on the project expands. The new timeline reflects the fact that after some difficult early days, the project hit its stride and started picking up steam. Our goal is to have a complete rollout by 2026.

Global Implications and Legislative Context

And the evolution of CBDCs such as Drex is attracting international attention. In fact, recent U.S. legislation has placed stringent new restrictions on their development. The world will be looking at Drex’s attempt. Can they ensure that a CBDC doesn’t just address Brazil’s unique requirements, but serves as a model for other countries to follow?

The BCB remains committed to private sector collaboration in the Drex project, despite the shift away from an immediate blockchain-centric approach. The bank’s spirit is one of collaboration. It seeks out cross disciplinary expertise as a critical ingredient for developing a more equitable future for digital finance. If Drex is a success, important lessons may be in store for other countries considering their own CBDCs.