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Central Banks of Hong Kong and Israel Collaborate on CBDC Project

Central banks and fintech partners develop a retail digital currency, blending cash and digital features, emphasizing accessibility and security.

Fri, 15 Sep 2023, 10:47 am UTC

On September 12, the results of an innovative venture named Project Sela were unveiled by the Bank for International Settlements, along with the central banks of Hong Kong and Israel. This venture represented a public-private alliance aiming to craft a retail central bank digital currency (rCBDC), a blend of traditional cash features with digital benefits.

The goal of this collaboration was to design a system that factored in policy, technological, security, and legal aspects. To achieve this, the project drew upon the expertise of fintech firms FIS and M10 Networks, relied on Clifford Chance for legal insights, and engaged Check Point Software Technologies to fortify cybersecurity. Essentially, Project Sela was a testing ground for the concept.

Within this unique ecosystem, the central bank responsible for the rCBDC would also oversee the ledger. This would comprise pseudo-anonymous accounts for end-users, ensuring instantaneous settlement via a real-time gross settlement (RTGS) system. Meanwhile, funding institutions would oversee user accounts, facilitating the conversion of the rCBDC to and from bank deposits or tangible cash. An intermediary, termed an 'access enabler,' would take charge of direct customer services, such as compliance procedures, while also allowing end-users the autonomy to manage their digital wallets through encryption keys.

A distinct merit of this system is its appeal to private financial institutions offering varied financial services. By streamlining functions, it can potentially heighten competition, broadening user access. With this system, these access enablers are free from tasks like account creation, record management, or fund control. This minimizes the regulatory oversight they face.

The report suggests that such a system can foster more inclusive participation from various entities, such as SMEs, non-profits, e-commerce vendors, community hubs, and tech firms, in providing rCBDC services. In this setup, traditional financial bodies like banks and credit unions remain relevant. Moreover, individuals won't require an account with these institutions to convert their rCBDC to physical cash or vice versa. All settlements occur through central banks, granting users unbroken command of their funds. It's expected that central banks would manage this distributed ledger platform.

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