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Why Brazil’s CBDC Won’t Launch on a Blockchain
00:09:25
An update on Drex with Ronaldo Lemos
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Transcript18 lines
- [00:00]
A
Hey, everyone, I'm Jen Senassi. This is market's outlook on CoinDesk. This episode comes to you from Stellar Meridian 2025 in Rio de Janeiro, Brazil. One of Brazil's leading voices on the intersection of law, technology and society. As the founder of the Institute for Technology and Society of Rio, he is advising Brazil's central bank on the creation of Drex. He also connects this local expertise with a global perspective. As a board member of the Stellar Development Foundation, Ronaldo Lemos. Welcome to the show.
- [00:34]
B
Thank you so much. Hi.
- [00:37]
A
All right. We haven't talked at all about Drex on the show and so I'm really excited that we are going to wrap it up by talking about it. Its has been working with the central bank on Drex. This is Brazil's central bank digital currency. Tell us a little bit about the progress that's been made here and what's driving the central bank to launch this.
- [00:55]
B
Absolutely. So Brazil has been very innovative in terms of, you know, changing finance. And the pillars of this innovation are pix, which I think everyone gets to know. It's a payment system, very well designed, that allows for instant payments in Brazil at no cost for the end user. But the second pillar is actually Drax, which is the real digital, the digital version of the Brazilian currency. And the important thing about Drax is that it's programmable. So the idea is not only to release a digital version of the currency, but to make it programmable and integrated with platforms. And my hope is we, with Soroban and other platforms as well, so that you can actually create smart contracts on top of it. So that's the plan. And we are advising the central bank, especially on the privacy issue, which is not simple, especially because of the scale of Brazil. But we're, you know, trying to solve that problem so that Dex can be released in full as soon as possible.
- [02:09]
C
I think if you can explain the difference between a CBDC and a Stablecoin, I think our audience sometimes gets them confused. But in addition, maybe you can also talk about whether the end user cares, you know.
- [02:21]
B
Yeah, this is a great question. First, CBDCs, they are public money issued by the central bank. So the liability lies on the central bank itself. A stablecoin is issued by a particular project and the liability is on that project itself. So there are two different things. So the Brazilian digital real will be just like a digital version of fiat money issued by the central bank. The user. Actually, it doesn't care that much about the pipelines. It doesn't know the nitty gritty of how Drax works and how it operates, but it cares a lot about the applications. So the user is looking for new applications just like what Pix has become. Pix is a huge success. Just to give you a sense. Every day there are 2.3 transactions of Pix by person in Brazil and we have like 210 million people in Brazil and each day there's like two transactions 0.3 by Pix. So it works because the end applications are very valuable and with Drax it's going to be the same thing. So the applications are collaterals. You can build collaterals through smart contracts and also democratizing finance. Brazil treasury bills, they pay a lot. They pay about 15% a year, which is higher than the US and the Brazilian currency has been pretty stable for the past many years. So how do you democratize that you can provide actually access to those bills to, you know, a lot of customers that don't have access to them right now. That's a good application for the health digital and even maybe to people outside Brazil that can have access to those high yielding bills that are issued in Brazil.
- [04:22]
A
You brought up privacy at the beginning of our conversation and I think that's something that comes up a lot when we talk about CBDCs is people's concern of government overreach and privacy. How have you been talking to the government, the central bank here in Brazil about that?
- [04:37]
B
This is actually a key issue and because of privacy, Drax has been held back, the schedule has been delayed, so now it's 2026 and maybe even a simpler architecture, less ambitious in the beginning. And the key concern is precisely that. So there are people that are afraid that if you use a governmental issued type of money, the government will be able to see everything that we do. And we don't want that actually. We want the real to work just like a physical bill, so that you can actually do whatever you have to do without this loss of the expectation of privacy. So we are looking into how that can be achieved. And of course there are things in which privacy, transparency is actually desirable. So public expenditure, most of it is actually at the public interest that you know how the state is spending money. So for those cases, privacy is basically a lesser concern. But for the day to day use of money for citizens in Brazil, this is a very important concern. So the central bank has been looking into architectures that enable privacy. I myself am looking in things like homomorphic fully encryption, which I think it's a new technology that can be important for what Drax wants to achieve. And I think that's the way to go. It's. It's a mix between legal measures and also architecture measures that can ensure the privacy side of it. I'm.
- [06:19]
C
I'm interested in the, you know, you're talking about the homomorphic encryption. It sounds like the, the Drex project may be moving a little bit away from blockchain. We're here at a blockchain event.
- [06:29]
B
True.
- [06:31]
C
Is that a decision that's made because of certain conditions, or is it maybe blockchain isn't yet. Right. The tool that that is is good for Drax.
- [06:39]
B
Yeah. I think the ultimate goal is to make it to the blockchain, because otherwise it's kind of pointless. Right. What do you have to achieve? Blockchains are universal blockchains across border infrastructure. So they must be the ultimate goal. So what I see is that the central bank is actually creating a pilot to be launched next year that has a different architecture, which is not blockchain. As a pilot, I think that is okay. But as the ultimate goal, as the blueprint to, you know, pay homage to Stellar, I think that is not sufficient. So I think this should be just a step before you get the scalability, universality, full transparency of the Rails established through blockchain. Otherwise it's not tracks. I think they even should change the.
- [07:38]
C
Name, you know, and, and just to bring that one step further, the interoperability that this money creates as a possibility. The idea that you could take a. A digital dollar, digital yen, digital euro, digital real, and have them quickly convert one to another, really is the promise.
- [07:56]
B
Absolutely.
- [07:56]
C
Of all of this. But they do need to rely on the same infrastructure, correct?
- [07:59]
B
Yeah, yeah. And the thing is, Brazil has a sort of a closed economy. One thing that we haven't figured out is precisely foreign exchange. It's actually very difficult to do it in Brazil in a seamless way. So that's why I think stable coins, for instance, are great, because they allow Brazilians to basically have more control of how they do foreign transactions. And it's been adopted by banks and fintechs and so on, but we can figure that out in a different way. So that's why I think like the three pillars are pix, which I think is doing great when we have Drax and then we have a third component which is open finance, which is actually access to financial data so that you can provide lower interest and you can create like a more intelligent even now with artificial intelligence solutions. So I think your point is very important and there is a very important role for stablecoins to be played to play in Brazil, because it's not that everything has been solved. Pixel is great. But it feels to me that these two other points, they can be achieved with blockchain applications and beyond.
- [09:14]
A
Ronaldo, thank you so much for joining us here at the desk and wrapping the show with us. It was a pleasure.
- [09:19]
B
Thank you so much.