Israel and Hong Kong Successfully Conduct Retail CBDC Test, Prioritizing Privacy and Inclusivity

Bank for International Settlements and Central Banks of Hong Kong and Israel Unveil Project Sela

The Bank for International Settlements (BIS), along with the central banks of Hong Kong and Israel, recently released the findings of Project Sela. This collaborative effort aimed to create a retail central bank digital currency (rCBDC) by leveraging the expertise and resources of both the public and private sectors. By combining the features of physical cash with the advantages of digitalization, Project Sela sought to develop a more efficient and accessible form of currency.

In order to bring this ambitious project to life, the central banks worked closely with private participants, including fintech companies FIS and M10 Networks, legal analysis firm Clifford Chance, and cybersecurity specialists Check Point Software Technologies. Together, they utilized their diverse expertise in policy, security, technology, and legal matters to create a proof-of-concept for the rCBDC.

A key component of the Sela ecosystem is the Access Enabler, a financial infrastructure that simplifies customer-facing activities without holding users’ rCBDC. This innovative approach reduces complexity, costs, and risks when compared to current payment providers. With the Access Enabler handling services such as Know Your Customer compliance, endorsements, and routing, end users maintain control over their electronic wallets using cryptographic keys.

One of the primary advantages of the Sela ecosystem is its accessibility for private financial institutions. These institutions can carry out the necessary financial services, enhancing competition and expanding user access within the system. This inclusivity extends to small and medium-sized enterprises, civil society and charitable organizations, e-commerce providers, community centers, and technology companies. Lower entry barriers enable a wider range of participants to provide rCBDC services, fostering a more diverse and inclusive financial landscape.

Importantly, the Sela ecosystem does not disintermediate financial institutions in the traditional sense. Banks, credit unions, and similar organizations still play a crucial role in converting rCBDC into cash and maintaining user accounts. However, users no longer need to be account holders to take advantage of their services. The central banks settle payments, while users retain full control over their funds throughout the process.

Risks associated with real-time gross settlement (RTGS) systems are identified in the Project Sela report. These systems are not available 24/7 and are not optimized for frequent small transactions. The report explores potential technical solutions to address this limitation and ensure the seamless operation of the rCBDC ecosystem.

Project Sela represents a significant step forward in the development of retail central bank digital currencies. By harnessing the expertise of both public and private sectors, the collaboration aims to create a more efficient, accessible, and secure form of digital currency. As the world moves closer towards widespread digitalization of financial systems, initiatives like Project Sela pave the way for a more inclusive and technologically advanced future of finance.

– Bank for International Settlements: [Link]
– Hong Kong Regulator Eyes Tokenization for Bond Market Improvement: Report: [Link]
– Magazine: Ripple, Visa Join HK CBDC Pilot, Huobi Accusations, GameFi Token Up 300%: Asia Express: [Link]

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J-S Tremblay
About the author - J-S Tremblay

I've been involved in the cryptocurrency world since 2016 and trading since 2019. I started Moon and Lambo in 2021. I'm passionate about crypto and love to share my knowledge. I hate bankers and I hope that cryptocurrency will change the financial world for the better. View full profile...

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