Since the announcement of the launch of Drex, the new Brazilian digital currency, I have analyzed the advantages of using an electronic monetary unit in a country. It is evident that the biggest gains are linked to security issues based on blockchain technology, just like the already famous cryptocurrencies. Like PIX, Drex is just another step towards increasing the digitalization of monetary transactions in the country, but what are the logistical advantages of stopping using cash?
Figure 1 – What is Drex? Source: Central Bank of Brazil
The logistical network for making cash available in any country's economy is intricate, with special emphasis on the safe transportation and adequate storage of banknotes and coins. The process of transporting money begins at the facilities of the monetary authorities, where notes are printed and coins are minted following a request from a central bank. Once produced, the money is generally transferred to a centralized location that is responsible for redistributing the cash to regional centers through carriers specialized in security. Finally, the money is then distributed to banks and ATMs, and may previously pass through so-called custodian institutions, which are outsourced companies responsible for the appropriate logistics of the money.
Figure 2 – The Money Path. Source: Central Bank of Brazil
In Brazil, the Casa da Moeda, located in Rio de Janeiro, is responsible for printing banknotes and coins after the production order sent by the Central Bank of Brazil. When printing is finished, the money is sent to 9 cities (technical departments), where it is stored until it is sent to Banco do Brasil facilities, which acts as custodian throughout the national territory, and is also responsible for collection and verification. the state of conservation of the cash that is returned. Being in the possession of Banco do Brasil, it is responsible for following the monetary policy defined by the Central Bank to distribute the money to other financial institutions, which in turn redistribute the amounts among their bank branches, lottery agencies and ATMs. Another important actor in this network, although smaller, are the change counters, managed by Banco do Brasil and which keep coins and 2 and 5 reais notes in custody, serving as a monetary exchange point for individuals.
Figure 3 – Money logistics network. Source: ILOS
For many, it may seem that cash is something in extinction after the creation of PIX, but this type of perception only makes sense in large cities, since informality and low banking availability are still strong throughout the national territory, especially in the North and Northeast regions. According to a research carried out by Instituto Locomotiva in 2022, around 44% of the Brazilian population say that physical money is their main means of payment, while 28% receive part or all of their remuneration in cash. Furthermore, cash is still seen by the population as one of the quick and safe ways to create a monetary reserve, evidenced by the peak in 2020 during the Covid-19 pandemic boom. According to the director of the Central Bank Carolina Barros, this number is justified not only by the increase in emergency aid, but also by the principle of a bank run observed around the world, forcing central banks in all countries to issue more currency to maintain the credibility of the banking system.
When we think of cash as a product, it is ironic to imagine that this highly capillarized logistics network with a high degree of managerial complexity exists to make available an item that, in itself, does not add value to the Union's economy. Accordingly as central bank, approximately 35% of the total coins produced in Brazil are forgotten or lost. While kept as a store of value or lost on the streets, a real banknote is worthless to the Brazilian economy, having only been responsible for generating costs.
In a next post, I will talk a little more about these costs involved in the cash logistics chain in our country. Meanwhile, I invite everyone who has come this far to reflect on the global economic movements towards the digitalization of money, also thinking about the challenges of achieving a fully digital economy.
References
- bcb.gov.br/estabilidadefinanceira/drex
- bcb.gov.br/cedulasemoedas/caminhododinheiro
- banco24horas.com.br/blog/distribuicao-do-dinheiro
- banco24horas.com.br/blog/dinheiro-em-especie-qual-e-a-sua-forca-no-brasil#:~:text=Segundo%20pesquisa%20do%20Instituto%20Locomotiva,as%20classes%20D%20e%20E.
- exam.com/economia/dinheiro-em-especie-ainda-ea-base-das-transacoes-no-brasil-diz-directora-de-administracao-do-bc/
- bcb.gov.br/cedulasemoedas/obtencaotroco
