BIS Joins Hong Kong, Israel for CBDC Experiment

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The BIS Innovation Hub partnered with the Bank of Israel and the Hong Kong Monetary Authority to trial a retail CBDC. 

The Bank of International Settlements (BIS), in partnership with the central banks of Hong Kong and Israel, recently completed Project Sela. Project Sela proved a retail central bank digital currency (rCBDC) can combine accessibility, competition and preventative cyber security while retaining the main advantages of physical cash. 

With Preventative Design, rCBDC Does Not Comprise Cyber Safety

Project Sela is coordinated by the BIS Innovation Hub Hong Kong Centre and leverages the Bank of Israel’s cyber security expertise and work on the digital shekel, along with the Hong Kong Monetary Authority’s (HKMA) findings from previous projects such as Project Aurum and e-Hong Kong Dollar. The project also took advice from other Innovation Hub experiments on retail CBDCs. 

According to the BIS, one of Sela’s key goals was to promote an accessible, competitive, and innovative retail CBDC that can serve a variety of use cases. In achieving this goal, the project aimed to lower barriers to entry for service providers and unbundle and redistribute the activities associated with retail CBDC accounts in the private and public sectors.

Project Sela further aimed to establish a digital means of payment that retains the desirable attributes of cash and maintains an appropriate level of privacy for its users. The features include being free from credit risk, being widely accessible, a safe means of payments and storing values, the ability to complete settlements and low operation costs instantly.

 Sela Introduces Novel Type of Intermediary

One of the core parts of Project Sela is a novel type of intermediary called the Access Enabler. This intermediary manages all customer-facing retail CBDC services without “holding” end users’ retail CBDC. This eliminates the need to hold funds to maintain liquidity or reduce its settlement risk.

A further advantage of the Access Enabler is it does not need to hold funds on its balance sheet. Compared with current payment service providers, the Access Enabler removes two notable cost sources: complexity and risk. 

Bénédicte Nolens, Head of the BIS Innovation Hub Hong Kong Centre, commented:

“Project Sela explored the feasibility of a CBDC system where the central bank operates the retail ledger and a new type of intermediary, called an Access Enabler, provides broader access to the CBDC, promoting competition and innovation. It showed that this can be achieved without compromising cyber security or the privacy of end users from the central bank.”

 Deputy Governor of the Bank of Israel, Andrew Abir, commented:

“Competition and innovation require a flourishing and open ecosystem with many different types of service providers. This was our initial goal in Project Sela as a proof of concept, and the project proved the feasibility of the model we had in mind. If central bank money is to go digital, cybersecurity is key, and the project provided an opportunity to discuss and study cybersecurity elements of CBDC with our partners. The Bank of Israel is honoured to collaborate with institutions that stand at the frontier of CBDC explorations.” 

Howard Lee, Deputy Chief Executive of the HKMA, said Project Sela renews the city’s interest in exploring an electronic version of its HKD. He said: 

“Project Sela provided valuable practical insights into the cyber security, technological, legal and policy aspects of a retail CBDC implementation. While the HKMA has not yet made a decision on whether and when to introduce a retail CBDC in Hong Kong, Project Sela’s outcomes will inform our on-going exploration of a possible e-HKD. We hope Project Sela will also benefit other central banks in their own evaluations of different retail CBDC architectures.” 

Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.