Brazil’s central bank is expanding its digital currency pilot to trade finance, collaborating with a group of banks and technology companies to automate settlement of agricultural commodity trades. 

The pilot project, called Drex, uses a digital version of the Brazilian real and a blockchain-based platform that allows real-world transactions to take place via smart contracts.  

The central bank has previously given the example of a purchase of a car, where the seller does not want to transfer ownership until they receive the funds, and vice versa. Drex would transfer ownership and funds at the same time once the conditions of the deal have been fulfilled by both parties, the bank explains. 

The second phase of the Drex pilot will apply this principle to the trade finance sector, with the aim of automating settlement of cross-border agricultural commodity trades across different platforms and currencies. 

The pilot involves tokenising electronic bills of lading, and will incorporate supply chain data so that payments to suppliers can be triggered when required. 

Blockchain technology platform Chainlink, which is involved in the project, says blockchain-based trade finance would improve efficiency, security and transparency in the commodity trading market. The pilot is due to begin “in the coming weeks”, it says. 

To support the project, Chainlink has developed a protocol, CCIP, to allow interoperability between Drex and other central banks

Digital lender Banco Inter is leading implementation efforts within the country, while technology giant Microsoft provides cloud services and digital transformation solutions provider 7COMm is supporting technical delivery. 

Banco Inter’s head of emerging technology, Bruno Grossi, says the project is “a transformative opportunity to expand market reach and improve the health of the Brazilian market”. 

Angela Walker, global head of banking and capital markets at Chainlink Labs, says the project is a “key” use case for central bank digital currencies, which involve the creation of a blockchain-based tokenised version of a national currency that can be used to settle transactions. 

The pilot “will showcase what tokenised assets can do at scale”, Walker says. 

“We look forward to working with the Central Bank of Brazil, Banco Inter and Microsoft to demonstrate how the adoption of blockchain technology combined with Chainlink’s interoperability protocol CCIP can transform trade finance.” 

João Aragão, innovation specialist for financial services at Microsoft, says Drex is also being designed to “broaden access to intelligent financial services”.