The Central Bank of Brazil (BCB) has unveiled the 13 themes selected for the second phase of its Central Bank Digital Currency (CBDC) pilot, 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 collaboration with the Securities and Exchange Commission (CVM), has chosen themes that cover a broad spectrum of financial services. These include optimizing the foreign exchange market and automobile transactions.

Global heavyweights like Visa and Santander are set to play prominent roles in this phase, indicating the pilot's growing significance on both national and international stages.

Visa and Santander Among Key Participants

The second phase of the Drex pilot boasts a diverse group of participants. Sixteen consortia or companies will test and develop essential resources for the platform's operation.

Major global players like Visa and Santander are among the notable participants. In partnership with XP and Nubank, Visa will focus on optimizing the foreign exchange market. This strategic move aims to streamline cross-border transactions using the CBDC infrastructure.

On the other hand, Santander plans to explore the potential of CBDCs in automobile transactions. They will also work on credit transactions and a decarbonization project that aligns with global sustainability goals.

The BCB has divided the 13 selected themes between itself and the CVM. The central bank will oversee 11 themes, while the securities regulator will supervise two.

These themes span various financial applications, from credit transactions and trade finance to real estate and agribusiness asset transactions.

For example, themes like 'Credit Collateralized in CDB' involve significant banks such as Bank of Brazil, Bradesco, and Itaú. Meanwhile, consortia, including BB, Caixa, and SFCoop, will explore 'Real Estate Transactions.'

CBDC Brazil: New Applications in Q3 2024

As the Drex pilot moves into the second phase, the focus will be on refining the interaction between privacy solutions and implementing financial services via smart contracts.

Each selected theme will operate within dedicated debate environments. Here, regulators and participants will collaboratively refine governance models and strategies for integrating these services into the broader financial system. The BCB plans to open a new call for applications from entities interested in joining the Drex pilot in the third quarter of 2024.

"During the third quarter of 2024, the BC will open a call for new application proposals from entities interested in participating in the Drex Pilot. Those selected must test the implementation of smart contracts by the end of the first half of 2025."

This move aims to broaden participation and test 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 regulatory bodies.

Although there is much speculation about what CBDC wants to achieve, this phase of the Drex pilot represents a significant step toward realizing digital currencies' potential to enhance financial inclusion and operational efficiency within Brazil's economic system. The outcomes of these tests will likely set the stage for digital finance in Brazil.

Setting the Stage for Digital Finance

The Drex pilot is poised to play a pivotal role in Brazil's digital transformation. Earlier this year, the central bank unveiled a multi-phase plan to regulate crypto and virtual asset service providers, setting the stage for crypto adoption in the country.

The BCB aims to finalize the regulatory proposals by the end of this year. The results of these tests and regulations will likely define the future of digital finance in Brazil, paving the way for a more inclusive and efficient financial ecosystem.

BCB's pilot program, Drex, is a watershed moment for Brazil's financial system. The involvement of global players like Visa and Santander underscores its importance. As the pilot progresses, it will be fascinating to see how these initiatives shape the future of digital finance in the country.