By Mallika Patkar and Joselyn Salazar
According to the Atlantic Council’s Central Bank Digital Currency (CBDC) Tracker, 134 countries and currency unions, representing 98% of global GDP, are currently exploring a CBDC. This marks a significant increase from just 35 countries in May 2020. While many countries are exploring CBDCs, Brazil has taken a distinct approach with Drex (Digital Real eXperience). Spearheaded by the Banco Central do Brasil (BCB), Drex is part of a larger effort to modernize the financial ecosystem, enhance economic efficiency, and expand financial access. Unlike other countries which are primarily digitizing payments, like China’s e-CNY or Nigeria’s eNaira, Drex is designed to go further—integrating tokenized assets, smart contracts, and lending to improve credit access, asset ownership, and decentralized finance (DeFi). As Brazil moves forward with its digital currency strategy, its approach offers valuable lessons for other markets seeking to balance technological innovation with responsible, financial inclusion.
What are CBDCs and how does Drex fit in?
The journey toward CBDCs has been shaped by the evolution of digital financial assets: from the origins of smart contracts to crypto currencies, and all the way to stablecoins. The theoretical framework of decentralized digital currency dates back over two decades to the work of legal scholar and computer scientist Nick Szabo, who aimed “to create a payment mechanism that was free from a central authority and would act as a long-term store of value”. Fast forward to 2009, where an elusive, enigmatic and pseudonymous third-party (or parties), going by Satoshi Nakamoto, launches ‘Bitcoin’ as the first crypto currency – a peer-to-peer, decentralized digital currency leveraging blockchain technology. While Bitcoin and other cryptocurrencies introduced a radical new financial paradigm, they also brought volatility, security risks, and regulatory uncertainty.
To address these challenges, stablecoins emerged as a bridge between cryptocurrencies and traditional finance, offering price stability by pegging their value to assets like the U.S. dollar. They provided faster, more cost-effective cross-border transactions while maintaining some decentralization. However, stablecoins still rely on private issuers and can pose risks if not properly regulated. Recognizing both the potential and the limitations of these digital assets, central banks worldwide have developed CBDCs—digital versions of national currencies issued and backed by the central bank. Unlike stablecoins, CBDCs provide state-backed security, financial stability, and full regulatory oversight while leveraging the efficiency of digital payments. By integrating the strengths of blockchain-based innovation with the trust and credibility of central banking institutions, CBDCs represent the next phase of digital finance.
Brazil has been a pioneer in adopting digital financial solutions. Drex is the country’s official CBDC initiative, designed by the BCB to modernize the financial system through blockchain technology and smart contracts on a single Drex platform. Unlike cryptocurrencies or stablecoins, Drex is fully regulated and backed by the government, ensuring financial stability while expanding access to digital payments. The system is structured in two instances: wDrex (wholesale Drex), which facilitates interbank transactions and settlements, and rDrex (retail Drex), which enables everyday payments in the form of peer-to-peer transfers. By leveraging blockchain’s efficiency within a secure and regulated framework, Drex aims to reduce transaction costs, foster innovation, and create a more inclusive financial system in Brazil.
Drex is currently being implemented through a phased approach. In 2023, the BCB launched a pilot phase—involving financial institutions and fintechs—to test core functionalities such as tokenized deposits, interoperability, and smart contract capabilities on a distributed ledger platform. The pilot focused on developing Drex’s technical architecture, privacy safeguards, and settlement processes. In 2024, Drex moved into a broader testing phase with a wider group of stakeholders, including new financial products and use cases such as tokenized public bonds, digital wallets, and programmable payments. A full public rollout is expected in 2025, making Drex one of the most advanced and thoughtfully phased CBDC projects in the world.
The role of regulation and infrastructure
The BCB has been proactive and created a regulatory environment that has enabled innovation and enhanced financial services. Drex builds upon long standing investments in digital financial infrastructure. The BCB’s long-term commitment to fostering an open, competitive financial system has made the transition to a CBDC much smoother than in other countries where cash remains dominant.
The BCB’s success can be seen in Pix, Brazil’s real-time payments system. Launched at the height of the COVID-19 pandemic in 2020, Pix witnessed rapid adoption. Only 18 months after its launch, 67% of the Brazilian adult population had used Pix. As such, digital transactions are already deeply integrated into everyday financial activity even before Drex was announced and piloted.
Beyond Pix, Brazil’s open banking regulations have further strengthened its digital finance ecosystem by allowing secure data sharing among financial institutions (with user consent). This regulatory approach has enhanced competition, improved financial inclusion, and streamlined access to financial services.
Ultimately, Drex benefits from Brazil’s well-established digital infrastructure, ensuring that its adoption is not hindered by regulatory uncertainty or a lack of financial digitization.
Drex’s Role in Expanding Financial Access
Many CBDCs worldwide are designed primarily to function as digital cash, making payments faster and more efficient. Drex, however, is different. It is built to expand financial inclusion by introducing tokenized assets and smart contracts—two features that could democratize credit access and investment opportunities.
One of the most promising applications of Drex is tokenized lending, which could provide small businesses and individuals with new forms of credit. By allowing assets to be tokenized—whether real estate, government bonds, or other securities—Drex makes it easier for borrowers to access collateralized loans in a more efficient, transparent manner.
Another innovation is Drex’s ability to lower barriers to wealth-building through fractional asset ownership. Historically, many Brazilians—especially those in lower-income brackets—have had limited access to investment opportunities. With Drex, individuals could own fractional shares of real estate, corporate bonds, or infrastructure projects, opening up new avenues for financial growth. In contrast, the Bahamas’ Sand Dollar serves primarily as a digital version of physical cash, without features designed to improve financial inclusion beyond payments.
Furthermore, smart contracts on Drex could automate financial transactions, reducing fees and improving efficiency. This could be particularly useful for automated loan repayments, insurance payouts, or government disbursements, ensuring transparency and reducing administrative costs. Compared to the European Central Bank’s digital euro, which prioritizes privacy and offline usability, Drex’s focus on programmability gives it a distinct advantage in expanding access to financial services.
Challenges Ahead: Risks in Drex Adoption
While Drex presents a bold vision for financial innovation, its success will depend on how well Brazil navigates several potential challenges. First, widespread adoption hinges on digital and financial literacy. As of 2023, approximately 23.8 million Brazilians aged 10 and over still did not use the internet, with rural usage lagging at 72.7% and even lower penetration among lower-income groups—around 60%. These gaps raise concerns about a digital divide that could leave behind the very populations Drex aims to include. Second, privacy and cybersecurity risks must be carefully managed. As Drex leverages blockchain and programmable payments, ensuring data protection and guarding against smart contract vulnerabilities becomes paramount. Third, the integration of tokenized assets into a regulated financial system introduces legal and operational complexities, including questions around asset custody, dispute resolution, and interoperability with existing financial institutions. Finally, public trust remains a critical factor. If users perceive Drex as overly complex, risky, or intrusive, adoption may stall—even with strong infrastructure and regulatory support. As Brazil continues to pilot and scale Drex, careful attention to these risks will be essential to realize its full promise without exacerbating financial exclusion or institutional fragility.
A Model for Other Markets?
Brazil’s approach to Drex demonstrates that a CBDC’s success depends as much on financial infrastructure and regulation as on technology itself. By first establishing a widely used digital payments system (e.g. Pix), fostering financial interoperability, and designing Drex as more than just digital cash, Brazil has created the foundation for a successful CBDC rollout.
For other countries considering CBDCs, Brazil’s model offers four key takeaways:
- Financial infrastructure must be built first – Countries like Nigeria, which introduced CBDCs without a strong digital payments foundation, have struggled with adoption. A well-functioning instant payments system (like Pix) can create trust and habit formation before launching a digital currency.
- CBDCs should expand financial access, not just replace cash – Drex’s focus on tokenized lending and fractional asset ownership provides real financial benefits to underserved populations. This positions CBDCs as tools for economic inclusion, rather than simply digitizing existing monetary systems.
- Programmability can unlock economic opportunities – By integrating smart contracts, Drex enables automated transactions, more efficient credit markets, and lower financial costs. This allows governments and businesses to explore new financial products, from programmable welfare payments to automated tax collection.
- Public-private collaboration and regulatory clarity are critical – Brazil’s DREX Forum provides a structured communication channel between regulators, businesses, and financial institutions. Countries developing CBDCs should engage stakeholders early to ensure smooth adoption and regulatory clarity.
As central banks worldwide explore the future of CBDCs, Drex offers a compelling blueprint—not just for emerging markets, but for any country that wants a digital currency that truly enhances financial access, economic opportunity, and financial innovation.
Mallika Patkar and Joselyn Salazar are Wharton Initiative on Financial Policy and Regulation student fellows. The views and ideas expressed in this post are those of the authors and do not necessarily represent those of the Wharton School or the Wharton Initiative on Financial Policy and Regulation.