CBDCs that settle on a central bank’s balance sheet are being tested in Hong Kong and Israel with the help of the BIS

Ninety-three percent of the world’s central banks are looking into the possibility of issuing CBDCs, according to BIS data.

To combat the privacy issues that have been raised in relation to central bank digital currencies (CBDCs), the Hong Kong Monetary Authority (HKMA) and the Bank of Israel (BOI) have joined forces. According to a report entitled “Project Sela – An Accessible and Secure Retail CBDC Ecosystem” published by the two central banks and the Bank of International Settlements Innovation Hub (BISIH) Hong Kong Centre, this is the case.

According to reports, Project Sela has shown that CBDCs may settle directly on the central bank’s balance sheet without compromising user privacy. The goals of the Sela proof of concept are outlined in the study, and they include facilitating the onboarding of intermediaries, encouraging innovation in the private sector, and reducing cybersecurity risks. Another objective was to include the advantages of digitization, such as location-independent and frictionless payment, rapid liquidity, and programmability, without losing the advantages of cash, such as its widespread availability, safety, and low credit risk.

A report presented at a conference held by the Bank of Israel on September 12 in Tel Aviv claimed that the project had demonstrated the viability of a retail CBDC architecture that could encourage “competition and innovation in digital payments by allowing non-bank payment intermediaries to connect directly to the CBDC ledger of the central bank.”

The project’s success was certain, according to BIS Innovation Hub Hong Kong Centre Head Bénédicte Nolens:

“The goal of Project Sela was to investigate the viability of a CBDC system in which the retail ledger is managed by the central bank and a novel form of intermediary, an “Access Enabler,” facilitates more access to the CBDC in order to increase competition and innovation. It proved that this could be done without affecting end-user privacy or cybersecurity while dealing with the bank.”

Ninety-three percent of the world’s central banks are looking into the possibility of issuing CBDCs, according to BIS data. Many CBDC models involve establishing a connection between customers and the central bank via third-party payment processors like banks. In contrast, Project Sela eliminates the need for direct custody of assets by using a “novel type of intermediary” to handle consumer-focused services.

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