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Brazil names its CBDC the Drex – Industry roundup: 10 August

Brazil’s central bank digital currency will be the Drex

Brazil’s central bank digital currency (CBDC), previously commonly referred to as the “digital real,” has been given its official brand name: the Drex. 

The name was revealed during at live broadcast on Banco Central do Brazil’s YouTube channel hosted by Fábio Araújo, coordinator of the digital real, and Aristides Cavalcante, deputy head of the central bank's technology and information department. The bank also  issued a press release revealing and explaining the new brand for its CBDC. 

“DREX combines several elements of innovation: the D for digital, R for real, E for electronic, and X for transaction, taking a step further in this family of Pix that we created and was a success,” Araújo said.

Pix is a Brazilian platform that offers instant, free electronic fund transfers using QR codes and easy-to-remember IDs like phone numbers and emails addresses instead of account numbers.

Along with the brand name, the central bank revealed Drex’s visual identity. “Alluding to a transaction, the two arrows that lean into the 'D' relate to the evolution of the real to the digital environment, reinforcing the attribute of agility, and the use of colours, in a transition from blue to light green, conveys the message of 'transaction completed,'” the entity explained.

Last month, Pedro Magalhães, a blockchain developer and founder of tech consulting firm Iora Labs, reportedly discovered functions in the Drex code that would allow a central authority to freeze funds or reduce balances. Last year, Araujo, also an economist at thec entral bank, explained that the CBDC has the potential to eliminate bank runs in the country.

China-backed mBridge project set for year-end launch

A new platform to expand the reach of China’s digital yuan and other central bank digital currencies is moving closer to reality and reports suggest that it is raising eyebrows among some defenders of a system long dominated by the US dollar and raising the prospect of a digital yuan challenge to USD dominance of nearly US$7 trillion in daily FX flows.

The Beijing-backed digital prototype for sending money around the world without relying on US banks is advancing so quickly that some European and American observers now view it as an emerging challenger to US dollar-denominated payments in global finance.

The mBridge project, which is being developed by China, Thailand, Hong Kong and the United Arab Emirates, will likely have a basic working product ready by year-end, four people familiar with the initiative said. It is a joint effort with the Basel, Switzerland-based Bank for International Settlements (BIS), a hub of global central-bank collaboration.

The US dollar features in an estimated US$6.6 trillion of foreign exchange transactions every day, while half of the approximately US$32 trillion in global trade each year is invoiced in USD, according to BIS and United Nations data. mBridge could eventually make it easier for the yuan to be used as a US dollar alternative by enabling its digital form to settle large corporate transactions.

While the platform has been under development publicly since 2017, some American and European officials who monitor it are increasingly worried that it will help give Beijing a head start using digital currencies to revolutionise wholesale payments across borders.

A digital alternative to USD-based settlement, critics say, could make it easier to evade sanctions, taxes and rules on money laundering, while fragmenting global payments into competing systems that further kindle geopolitical tensions.


Diversity progress in US boardrooms slows

Boards of the top US companies in the Standard &Poor’s (S&P) 500 have made recruiting directors with financial expertise their top priority over the past year, slowing boardroom gains for minorities, according to a report by executive search firm Spencer Stuart.

It found that out of 388 new directors added by the top U.S. corporations, 36% self-identified as Black, Hispanic or other racial or ethnic minorities, down from 46% last year. Separately 46% of all new directors were women, the same as in 2022, it said.

Julie Daum, leader of Spencer Stuart's North American board practice, said boards still prioritise diversity and noted the share of new minority directors was double its 18% level in 2013. However, growing  geopolitical and macroeconomic uncertainty has seek more companies seekt new directors with financial expertise like chief financial officers or investment managers, or current or former CEOs.

Traditionally those roles have included more white executives, leaving a narrower pool of minorities from which to recruit directors and driving down their share of the new class. According to research firm Equilar, just three of 68 financial services CEOs in the S&P 500 are not white. “There is a desire to have CEO and CFO experience and there is not as much diversity in those categories currently,” Daum said.

Investors have sought more boardroom diversity as part of a broader US focus on race relations.

The decline in the share of new minority directors came from a drop in Black or African-American directors. They accounted for 15% of the new directors this year, from 26% in 2022. New directors of Asian background made up 11% of this year’s class while 9% were of Hispanic or Latino origin, each a percentage point higher than a year ago.

Black citizens account for 14% of the US population, while Hispanics accounted for 19% and Asians 6%.


Japanese startup plans Asia cross-border payments system

Soramitsu, a Japanese blockchain startup is exploring new central bank digital currency (CBDC) applications with a project on the cross-border payment system for Asian countries, according to Cointelegraph.

It reports that the company will deploy Cambodia’s CBDC and fiat-pegged stablecoins as part of its new payment system targeting countries like India, China and Japan and regions like Southeast Asia. The new project builds upon Soramitsu’s CBDC expertise, including its involvement in the Asian CBDC project Bakong in Cambodia and Laos’ Lao kip, the firm announced on Tuesday.

Launched in 2020, Cambodia’s Bakong is a public-private initiative allowing Cambodian residents to pay at stores or send money through a mobile app using the local riel currency or US dollars. Since its launch, Bakong’s adoption has expanded to countries like Malaysia, Thailand and Vietnam. By late 2022, Bakong reportedly had 8.5 million users and handled around US$15 billion in payments.

Soramitsu is targeting expansion to other Southeast Asian countries. As part of the project, it plans to establish a Japanese exchange for stablecoins, which would allow conversions of currencies from diverse countries. For example, if a Thai user wanted to make a purchase from a Japanese e-commerce site, the payment would be sent as a dollar-denominated Bakong and converted to a yen-denominated stablecoin.

“Generally this project is for regulated stablecoins in Japan and other countries, as well as central bank digital currencies,” a spokesperson for Soramitsu told Cointelegraph. Adding that the company will focus on linkages between different CBDCs to ensure that each country has their own CBDC system maintained.

“Additionally, we are contributors to the SORA network and the Polkaswap DEX, so we will also explore ways to use the public, permissionless SORA network for cross-border issuance and settlement of CBDCs, with token swapping on Polkaswap,” the spokesperson added.

One of the features of Soramitsu’s planned payment network is an anticipated reduction in transaction fees. According to the firm, the fee reduction would be enabled by implementing stablecoins, which can be transferred without going through existing interbank payment networks.

To build the cross-border payment network, Soramitsu formed a team with Tokyo-based digital services company Vivit and the Tama University Center for Rule-making Strategies. It is looking to partner with major e-commerce sites. The firm is also working with Japan’s Mitsubishi UFJ Trust and Banking and other partners to create the necessary exchange infrastructure.


India to allow “vostro” accounts from 22 nations to broaden rupee trade

India is permitting banks in 22 partner nations, including Russia and the UK, to establish “vostro” accounts within its borders, the government informed the parliament on Tuesday, aiming to bolster trade conducted in rupees. The Reserve Bank of India (RBI) has given the green light to the change, Bhagwat Karad, India’s under-secretary of state for finance, told parliament this week.

Vostro accounts represent the funds a local bank typically manages on behalf of an overseas bank, denominated in the former’s currency. This move aims to enhance the rupee trade by facilitating international banking services for clients with global banking needs. It offers local banks increased access to international financial markets and the ability to serve global clients without the need for a physical presence in other countries.

India has been advocating for its partner nations to encourage trade valued in rupees, eager to minimise the transaction costs tied to currency.

Karad added that banks from nations such as Botswana, Fiji, Guyana, Kazakhstan, Kenya, Malaysia, Maldives, Mauritius, Myanmar, New Zealand, Oman, Belarus, Seychelles, Singapore, Tanzania and Uganda have been granted permission to establish accounts.


Abu Dhabi National Oil Company pursues U$50 billion in overseas business

The Abu Dhabi National Oil Company (Adnoc) is reportedly seeking to diversify its business and expand internationally through approximately US$50 billion in transactions.

Led by Sultan al-Jaber since 2016, Adnoc has transformed from a traditional state oil and gas producer into a more dynamic energy supermajor resembling an “internal investment bank.”

Adnoc has assembled a team of nearly 50 dealmakers, led by former senior Morgan Stanley executive Klaus Froehlich, who runs their investment team. This group is instrumental in pursuing multibillion-dollar acquisitions as part of Jaber’s strategy. Adnoc is currently engaged in deals with Brazilian petrochemical maker Braskem, Austria’s OMV, and German chemical company Covestro.

The company’s goal is to build a global portfolio encompassing chemicals and plastics in addition to its core oil and gas production. Adnoc has allocated US$150 billion for capital expenditure over the next five years to expand its oil and gas production, with US$15 billion reserved for low-carbon solutions over a longer period.

Reports note that by streamlining its workforce and monetising assets, Adnoc distinguishes itself from other Gulf state oil companies. It has sold off stakes in its pipelines to finance development and has floated five subsidiaries with a combined market capitalisation of about US$140 billion.

Adnoc’s aggressive investment and expansion approach has attracted attention, as tit positions itselfas more of an investment manager. Despite criticism of Jaber’s appointment as president of this year’s COP28 climate summit, Adnoc continues to pursue various deals. This includes bidding for a stake in an Israeli natural gas group with BP, considering a merger of its chemicals division with OMV, and seeking a takeover of specialist plastics producer Covestro.


Tesla “relies on China for 40% of battery supply chain”

Nearly 40% of the suppliers for materials used in Tesla’s electric vehicle batteries are Chinese companies, a Nikkei Asia analysis finds, underscoring China's strong presence in a strategically important sector.

The study, which Nikkei Asia compiled with Japan’s IT management services specialist Fronteo, found that China was the largest supplier of materials for the lithium-ion batteries used in Tesla's EVs, constituting 39% of the 61 companies in the “storage battery” category, based on an analysis of the US electric vehicle maker’s supply chain.

These companies included Ganfeng Lithium, a notable producer of lithium products; Novoray, which produces inorganic compounds; and Zhejiang Huayou Cobalt, which produces cobalt. The Chinese government holds shares in Novoray and Huayou Cobalt, with a 9% and 12% stake, respectively.

As noted in the companies’ analysis, public information included in financial statements and press releases identified 13,428 companies that were believed to supply items for Tesla’s EV production. The number includes “quinary” suppliers, which are five steps up the supply chain.

Despite China’s heavy presence in Tesla’s batteries, analysis indicated that US companies comprised 22% of Tesla’s overall suppliers. From an overall standpoint, Chinese firms accounted for only 17% of Tesla’s suppliers.

Fronteo director Mari Yamamoto noted that Tesla faces some risk due to its battery supply chain’s dependence on Chinese companies. Tesla, however, has shown signs that it is taking steps to lower its reliance on Chinese parts and materials, as evidenced by its  investment in a dedicated lithium refinery in Texas.


Thailand uses yuan and ringgit to counter baht volatility

Thailand plans to promote the use of China’s yuan (CNY) and other Asian currencies in trade and investments to curb wild swings in the baht against the US dollar, according to a central bank official.

The Bank of Thailand (BOT) expects greater use of regional currencies to help reduce exchange risk as they often move in tandem with the baht, assistant governor Alisara Mahasandana said in an interview in Bangkok.

While Thai efforts to promote currencies other than the dollar are more than a decade old, they are gaining momentum now with more bilateral central bank arrangements and development of financial infrastructure, she said.

Trade and tourism-reliant Thailand is among several Asian nations taking steps to mitigate the risks of a still-strong dollar that has weakened local currencies and become a tool of economic statecraft. BOT has been working with its counterparts from China, Malaysia and Indonesia to promote local currencies in their countries. More progress will be seen in the second half, Alisara said.

Thailand’s move comes amid a growing backlash against the hegemony of the US dollar across the globe. China has signed a slew of deals to boost trade in the yuan, India is promoting the rupee and countries from Brazil to Argentina are actively seeking alternatives to the dollar.

The baht rallied 3% in July – the most among major Asian currencies – after falling for three straight months. A gauge of expectations for price swings in the baht is near its highest level since May.

“The dollar-baht volatility has risen since last year, so it’s important to have more tools to cope with that,” said Alisara, who oversees financial markets operations group at BOT.

Thailand’s central bank began a revamp of its foreign exchange rules in 2020 with the baht figuring in the US Treasury’s monitoring list for currency manipulation. But a rare current-account deficit during the pandemic – mostly due to vanishing of billions of dollars in tourism revenue – sent the baht tumbling to a 16-year low last year. It has since bounced back about 10 per cent.

“It’s not easy to reduce the dollar’s usage as it’s the most liquid and the most widely used currency,” Alisara said. “But it also doesn’t mean we should stop pursuing this programme. At least we should offer them an alternative to help mitigate rising foreign exchange risk.”

BOT’s foreign exchange reforms are meant to ensure an orderly movement in the baht, said Alisara, who will become a deputy governor for monetary stability from October 1.

“We want the baht to move in line with market mechanism, in line with its fundamental,” Alisara said. “We may consider intervening in the currency only when the movements are excessive and against its fundamentals. The best way for businesses is to be prepared for the upcoming volatility.”


Brite Payments launches instant payments in Denmark

Sweden-based fintech Brite Payments has expanded its Nordic product coverage with the launch of Open Banking-supported instant payments and payouts in Denmark.

With full product coverage in Sweden and Finland, the addition of Denmark further strengthens the second-generation fintech’s footprint as it continues its expansion across Europe.

The company noted that with a population of nearly six million, Denmark has a highly developed financial services sector. Online banking penetration in the country reached nearly 95% in 2022, close behind its Nordic neighbours and well ahead of the rest of Europe. Denmark, much like Sweden, also has a well-established electronic personal identification system. These factors contribute to a significant instant bank payments opportunity in the Danish market, although the retail payments landscape is still largely dominated by cards.

Executives from Brite Payments said that Denmark is primed for the uptake of instant bank payments, as awareness of the benefits continues to increase amongst merchants. The market is a logical next step in their expansion, and they are “excited to now offer instant payments and instant payouts to merchants and consumers in Denmark as well as their existing merchant base across Europe.”


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