The Bank for International Settlements and the central banks of Hong Kong and Israel released the results of Project Sela on September 12. The project is a public-private partnership that uses private intermediaries to create a retail central bank digital currency (rCBDC) that combines the desirable characteristics of cash with the advantages of digitalization.
The project leverages the diverse experience of central banks and incorporates a number of pre-defined policy, security, technical and legal features. Private players include fintech firm FIS and M10 Networks, which provides core products, Clifford Chance, which provides legal analysis, and Check Point Software Technologies, which provides cybersecurity. This project is a proof of concept.
The Sela project proposes a new financial infrastructure, Access Enabler, that facilitates customer-facing activities without holding users’ rCBDC.It eliminates complexity, cost and risk compared to current payment providers #BISInnovation Center @hkmagovhk https://t.co/znVp81gQol pic.twitter.com/hItQamQc0K
— Bank for International Settlements (@BIS_org) September 12, 2023
In the Sela ecosystem, the central bank issuing rCBDC maintains its ledger through pseudo-anonymous end-user accounts and provides instant settlement through the real-time gross settlement (RTGS) system. Financing institutions manage user accounts and convert rCBDC into bank deposits and cash. Intermediaries called access enablers handle all customer-facing services, including KYC compliance, endorsements, and routing, while end-users maintain control of their e-wallets via cryptographic keys.
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One of the advantages of this ecosystem is that it can facilitate private financial institutions offering unbundled financial services, which is said to increase competition and lead to increased user access. Access facilitators do not create accounts, manage records, or control funds, reducing regulatory requirements on them:
“Compared with the existing payment market, lower entry barriers can allow more people to participate in providing rCBDC services, including small and medium-sized enterprises, for example [small- and medium-sized enterprises], civil society and charity organizations, e-commerce providers, community centers and technology companies, etc. “
Financial institutions are banks, credit unions, and similar organizations in the traditional sense. Therefore, it does not lead to disintermediation. Project Sela rCBDC users do not have to be account holders to use the services of these institutions to convert rCBDC to cash or from cash to cash. Payments are settled by the central bank, and users are always in control of their funds. It is assumed that the central bank actor is the operator of the distributed ledger system.
One system weakness identified in the report is RTGS systems, as they are often not available around the clock and are not suitable for frequent, small-value transactions. Potential technical solutions are discussed.
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