The Bank for International Settlements (BIS), along with the central banks of Hong Kong and Israel, has released the results of Project Sela. This project, which was a public-private partnership, aimed to create a retail central bank digital currency (rCBDC) that combined the benefits of cash with the advantages of digitalization.
Project Sela utilized the expertise of central banks to incorporate various policy, security, technology, and legal features. The private participants in the project included fintechs FIS and M10 Networks, which provided core products, Clifford Chance for legal analysis, and Check Point Software Technologies for cyber security. The project was conducted as a proof-of-concept.
The main concept introduced by Project Sela is the Access Enabler, a new financial infrastructure that simplifies customer-facing activities without holding users’ rCBDC. This approach eliminates complexity, costs, and risks associated with current payment providers. The Access Enabler acts as an intermediary and handles customer services, such as Know Your Customer compliance, endorsements, and routing. Meanwhile, end users maintain control over their electronic wallets with cryptographic keys.
One of the advantages of the Sela ecosystem is its accessibility for private financial institutions that provide unbundled financial services. This increased access is expected to promote competition and expand user reach. Access enablers do not create accounts, manage records, or control money, reducing their regulatory requirements. This opens up opportunities for SMEs, civil society organizations, e-commerce providers, community centers, and technology companies to participate in the provision of rCBDC services.
It is essential to note that Project Sela does not lead to disintermediation, as it still involves traditional financial institutions like banks and credit unions. Users of the rCBDC do not necessarily have to be account holders to utilize the services of these institutions for converting the rCBDC into cash or vice versa. Payments are settled by the central banks, and users retain control over their money throughout the process. The central banks participating in the project are assumed to be the operators of the distributed ledger system.
However, the report highlights a potential weakness in real-time gross settlement (RTGS) systems. These systems are typically not available 24/7 and may not be designed for frequent small transactions. The report discusses potential technical solutions to address this limitation.
Overall, Project Sela represents a significant step towards the development of a retail central bank digital currency. By leveraging the expertise of central banks and partnering with private intermediaries, the project aims to create a digital currency that combines the advantages of cash with the efficiency of digitalization. The Access Enabler infrastructure introduced by Project Sela promotes wider participation in the provision of rCBDC services, opening up opportunities for various organizations and enhancing competition in the market.
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